On 15 October 2019, the FCA published Consultation Paper CP19/29 on its fee proposals for the recovery of costs of supervising cryptoasset businesses when it becomes the Anti-Money Laundering (AML)/Counter Terrorist Financing (CTF) supervisor for such businesses from 10 January 2020. Any business which undertakes or expects to undertake cryptoasset activities to be formally confirmed by the Treasury will be affected.
The FCA has also published a dedicated webpage which sets out detailed information on its new role and to help cryptoasset businesses prepare.
As set out in the Government's Economic Crime Plan 2019-22, from 10 January 2020 the FCA will be the AML/CTF supervisor of cryptoasset businesses. Under this regime, the FCA's remit will be limited to AML/CTF registration and supervision only; the FCA will not be regulating cryptoasset businesses for how they conduct their business with consumers. It is hoped that this new FCA role will help minimise the risks that cryptoassets present to consumers and markets.
CP19/29 sets out the FCA's proposals for recovering the costs associated with this new role. It follows a consultation conducted by the Treasury on transposing the Fifth Anti-Money Laundering Directive (5MLD) which introduces new requirements for cryptoasset businesses. These requirements will be established by the proposed amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).
The Treasury has not yet published a Policy Statement confirming what cryptoasset activities will be included in the scope of the MLRs. The activities listed in the Treasury's consultation in April 2019 are therefore subject to change, although businesses carrying out these activities should assume they must comply with the MLRs from 10 January 2020:
Physical kiosks that allow users to exchange cryptoassets and fiat currencies.
A business that looks after the customer's tokens in its IT system or server and may administer or transfer the token on behalf of the customer.
A business that provides an online marketplace which facilitates the exchange of fiat currencies and cryptoassets (both fiat-to-crypto and crypto-to-crypto) between prospective buyers and sellers.
A business that sells a cryptoasset, promoted or sold as a new type of cryptoasset or one that will become useable in the future, in exchange for fiat currency.
A business that provides software such as an application, that may be downloaded and used by a customer on their device to store or administer a token, eg a non-custodian wallet application that a customer can download onto a decide to store the private key in relation to a token.
UK cryptoasset businesses must comply with the requirements of the MLRs from 10 January 2020.
Businesses will be responsible for consulting guidance from the Joint Money Laundering Steering Group and ensuring they meet their obligations under the MLRs. The FCA will start supervising firms from 10 January 2020, regardless of whether businesses are registered.
The FCA's approach to the supervision of cryptoasset businesses will be in line with its approach to other businesses. The FCA proposes to focus on those that pose the greatest money laundering risk.
As part of the FCA's supervisory assessment, businesses will be required to demonstrate:
As a result of the FCA's new supervisory remit, the FCA has introduced registration requirements for cryptoasset businesses. This means:
The FCA has provided a list of key dates applicable to registration – see the timeframe at the end of this update.
Points to note when registering include:
The FCA proposes to recover its costs in relation to its cryptoasset supervisory regime through:
The FCA proposes the registration fee to be set at £5,000 for all businesses. The FCA is aware of around 80 potential applicants. If it receives more or less applications than expected, it will carry forward the difference and set it against the remaining set-up costs to be recovered through future periodic fees.
For periodic fees, the FCA is proposing to create a new fee-block for cryptoasset businesses using income as the tariff base; the FCA plans to use its standard definition of income ie the gross inflow of economic benefits recognised in the entity's accounts during the reporting year relating to the provision of cryptoassets activities. Other aspects of the proposals on periodic fees include:
On 25 October 2019, the FCA published a dedicated webpage on its new role which provides detailed information on the steps that have been taken so far to address AML/CTF risks, and its approach to registration, supervision and enforcement. The webpage also includes a timeframe of key dates:
If you would like to discuss any of the above points, please do get in touch.