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9 August 2022
Disputes Quick Read – 40 of 99 Insights
Disputes Quick Read: New obligations on cryptobusinesses to report under the UK sanctions regime
The UK government has introduced major amendments to its sanctions regime to bring the reporting obligations on UK cryptobusinesses in-line with banks and other traditional financial institutions and exchanges.
From 30 August 2022, all UK cryptoasset exchange providers and custodian wallet providers (both firms and sole practitioners) will be legally required to report to the Office of Financial Sanctions Implementation (OFSI) if, during the course of carrying out their businesses, they become aware or have reason to suspect that a person either:
- is subject to financial sanctions (a designated person); or
- has committed an offence under a sanctions regulation.
When reporting to OFSI about a customer, cryptoasset businesses will also be required to include the nature and amount or quantity of any funds or economic resources (ie cryptocurrencies, NFTs, and other cryptoassets) that they held for a designated person at the time they became aware the person was a designated person.
Failure to report is an offence. It may result in a monetary penalty being issued by OFSI or criminal prosecution, alongside reputational risk.
The definitions in the amendments will already be familiar to many cryptoasset businesses and their advisors as they have been adopted from the 2019 amendment to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs):
-
"Cryptoasset exchange providers" and "custodian wallet providers" are broadly defined and businesses in scope will include those that create, issue, and exchange cryptoassets, as well as those which custody cryptoassets.
-
"Cryptoasset" is given an intentionally wide definition of "a cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and can be transferred, stored or traded electronically".
In March 2022, the FCA and PRA issued a joint statement which set out their view that cryptoasset businesses have a key role to play in ensuring sanctions are complied with, and that cryptoassets are not used to circumvent sanctions. The FCA also provided cryptoasset businesses with a number of controls that they were expected to implement in order to meet the FCA's expectations on sanctions and assist in meeting their obligations.
These amendments now formally bring the reporting obligations on cryptoasset businesses within the UK's sanctions regime. While the amendments are likely to represent an unwelcome increase in compliance and regulatory burden for cryptoasset businesses, the move is in keeping with the UK's increasing oversight and regulation of the cryptomarket and cryptoasset businesses.
As cryptomarkets mature, we expect to see further convergence of the obligations on cryptoasset businesses with more traditional financial institutions.
In advance of the amendments coming into force, OFSI is hosting a webinar on 11 August 2022 to help cryptoasset businesses understand their new reporting obligations. Cryptoasset businesses can register for the seminar by emailing ofsi@hmtreasury.gov.uk with the subject line ‘Reporting obligations webinar – cryptoasset businesses'.
If you would like to know more about what the new reporting obligations may mean for you, please feel free to reach out to a member of our team.
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