Wild West Crypto Firms Fail Corruption Checks: Financial Conduct Authority Sounds Alarm on Terrorism and Money Laundering
The vast majority of crypto companies looking to do business in the UK fail the basic checks needed to operate, according to regulators.
Around 85% of companies that applied to the Financial Conduct Authority (FCA) for registration were “unable” to meet the minimum standards required.
This included measures to combat money laundering and the financing of terrorism. The revelations have prompted MPs to warn that parts of the industry resemble the ‘Wild West’.
Checks: Around 85% of companies that have applied to register with the Financial Conduct Authority have “failed” to meet minimum standards
The comments came as MPs from the Treasury Select Committee investigate the sector after high-profile scandals including the collapse of crypto exchange FTX.
In a letter to the committee, the FCA said its “robust” approach meant only 15% of applicants had obtained registration.
It identified “significant deficiencies” in areas including customer due diligence, risk assessments, transaction monitoring and governance.
And he added that key staff often lack “appropriate knowledge, skills and experience to perform their duties and effectively control risks”.
The FCA also noted that in a small number of cases it had identified “probable financial crime or direct links to organized crime” and referred crypto businesses to law enforcement.
But its controls only apply to crypto businesses wishing to domicile in the UK and use the UK financial system.
Overall, the sector is unregulated in Britain, with the FCA only advising that those wishing to invest in digital currencies be “prepared to lose all their money”.
The lack of rules means non-UK based crypto firms can still market their products in Britain without having to follow any guidelines, even those relating to money laundering and terrorist financing.
Instead, they would be subject to the laws of the jurisdiction in which they are based – laws which can diverge wildly from those in Britain.
The FCA revelation comes as MPs conduct an investigation into the regulation of the sector.
“These statistics haven’t deceived us from the impression that parts of this industry are a Wild West,” said Treasury Committee Chair Harriett Baldwin.
The crypto sector has been rocked by high-profile crashes as the price of bitcoin and other popular cryptocurrencies plummeted amid the global economic downturn and rising interest rates.
Among the most notable is FTX, which abruptly went bankrupt in November before its founder Sam Bankman-Fried was arrested in the Bahamas the following month.
The 30-year-old former billionaire is currently under house arrest in the United States, awaiting trial over allegations he ran “one of the biggest financial frauds in American history”.
The collapse of FTX is estimated to have affected thousands of people in Britain, with the FCA noting that 8% of its 1 million customers were in the UK, which equates to 80,000 people.
Meanwhile, other players are coming under increased regulatory pressure, with the Dutch central bank fining the Dutch central bank £2.9m this week for failing to obtain proper registration before offer their services there.
Coinbase is considering appealing the sanction.
Regulatory warnings have also started to escalate as crypto markets begin to rally, raising fears that a new “boom-bust” cycle is about to begin.
The price of bitcoin has jumped by almost a third in the past month, while rival digital currency Ethereum has risen by 27%.
But both remain well below the records reached in 2021.