Most crytpo firms are failing the FCA’s money laundering tests

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Since crypto firms were brought under anti-money laundering (AML) rules, just 13% have been approved to operate in the UK.

According to figures from compliance consultancy Bovill, which submitted a Freedom of Information Act request on the topic, just 35 of the 273 applications under the Fifth Anti-Money Laundering Directive (5MLD) passed the criteria.

The FCA only approved four applications in 2020, 25 in 2021 and just six so far this year– most were refused for not providing enough information, while others simply did not meet the 5MLD standards. Other applications were withdrawn by the firms themselves.

Martin Cheek, MD at anti-money laundering experts SmartSearch says the figures show that the FCA is taking a tough stance on which crypto firms are permitted to operate in the UK.

“At the moment there is no specific regulation around crypto, but it is an extremely volatile market – highlighted by the crash this year. As a result, the FCA has issued a number of statements warning consumers about the risks of investing in - and the increase in scams related to - crypto, so it is no real surprise that the regulator is trying to weed out some of the risk at the source by taking a tough stance on those operators that do not meet their requirements set out under 5MLD.”

There are arguments that the FCA’s rules are not clear enough, making it hard for crypto firms to know what they need to do to comply, but, says Cheek, there is plenty of help out there guiding regulated firms on how to put proper AML procedures in place.

He said: “Crypto is one of the latest sectors to come under 5MLD, which could be why many firms are still struggling to meet the requirements, however, the rules are not new, and there are already hundreds of firms in other regulated sectors – e.g. property and law - successfully operating within the rules.

“Our advice to crypto firms looking to apply to operate in the UK – or reapply following a failed attempt - is to seek advice from third party specialists that have been working with regulated firms since the first money laundering regulations came into force who can help them set up the due diligence and KYC checks they need to meet the FCAs requirements.”

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