UK Regulator Defends Tough Crypto Rules to Combat Money Laundering

The UK’s financial regulator, the Financial Conduct Authority (FCA), has reaffirmed its commitment to enforcing strict rules on crypto companies despite pushback from the industry. The FCA maintains that these regulations are crucial for preventing the use of cryptocurrencies in money laundering.

The FCA insists that the tough registration process for crypto firms under the Money Laundering Regulations (MLRs) is necessary to protect the integrity of the UK’s financial system. According to Val Smith, head of payments and digital assets at the FCA, these measures aim to ensure a safe and competitive cryptocurrency market that safeguards both people and financial institutions.

Smith responded to critics who argue that the strict regulations may hinder the growth of the UK’s crypto industry, emphasizing that preventing crypto businesses from becoming tools for money laundering is a top priority. While some fear that these regulations may reduce the number of crypto businesses in the UK, Smith stressed that the FCA doesn’t reject applications arbitrarily but takes the risk of money laundering very seriously.

“We are committed to ensuring that illicit money does not flow through our financial system, as it can have devastating effects on individuals and communities," Smith explained. She added that the MLRs help address real-world issues such as organized crime, terrorism, and human trafficking.

Smith also cautioned against lowering standards for crypto firm registration, warning that doing so could lead to a "race to the bottom." She said that innovations built on unregulated or untrusted foundations are like “houses built on sand,” which are bound to collapse. Instead, the regulator wants to foster a crypto sector built on strong and reliable foundations, in collaboration with partners across government, industry, and other jurisdictions.

Smith emphasized that the FCA’s goal is to create a safe, secure, and sustainable crypto industry that can grow for many years to come. She highlighted the importance of setting and maintaining standards that the public and markets can trust.

Since January 2020, the FCA has been enforcing MLRs that require companies involved in crypto activities to register with the FCA. These regulations also require firms to conduct risk assessments, implement due diligence on customers, and appoint a Money Laundering Reporting Officer.

The UK is not alone in regulating the cryptocurrency sector. The European Union has introduced the Markets in Crypto-Assets Regulation (MiCAR) to create a unified cryptocurrency market, ensuring consumer protection and market integrity. Similarly, Singapore and Switzerland have implemented crypto-friendly policies, turning them into hubs for cryptocurrency startups.