The Financial Conduct Authority (FCA), U.K.’s top financial watchdog, has advised banks to adopt appropriate measures to minimize the risks and exposure inherent in the cryptocurrency business. This advice was contained in a recent letter sent by the FCA to the CEOs of local U.K. banks.
Robust KYC Protocols
The FCA encouraged banks to be more thorough in their know-your-customer (KYC) activities. The financial monitoring agency urged banks to be especially watchful of clients who earn considerable revenue from the market, saying:
Where you offer banking services to current or prospective clients who derive significant business activities or revenues from crypto-related activities, it may be necessary to enhance your scrutiny of these clients and their activities.
Banks are also encouraged to ascertain the source of wealth of their customers who participate in the market. The FCA admitted that applying the current means of following the “money trail” might be difficult to apply to crypto-assets. However, the agency insists that such difficulty isn’t a justification for employing other evidential tests for a customer’s source of wealth.
Due Diligence for Cryptocurrency Clients
Another area of concern for the FCA is the risk posed by the anonymity of cryptocurrency transactions. Many critics point to this anonymity as a means by which criminal elements can mask their nefarious activities. The financial monitor urged banks to “take reasonable and proportionate measures” to reduce the possibility of their services being used to facilitate tax evasion, money laundering, and terrorist funding.
The FCA letter also addressed the issue of state-issued cryptocurrencies. According to the agency, such cryptoassets are mainly used to circumvent international financial sanctions – case in point, Venezuela’s petro. The FCA believes trading in such digital currencies should constitute a red-flag. Such red-flags ought to be investigated further by the bank and other stakeholders.
The financial watchdog, however, conceded that not all cryptocurrency-related activities are inherently criminal saying:
There are many non-criminal motives for using cryptoassets. These include using them as high-risk speculative investments or as a means of funding innovative technological development.
This isn’t the first time that the FCA has issued statements relating to cryptocurrency in the U.K. In April, the agency declared that cryptocurrency trading tied to regulated financial products like options and futures contracts likely require authorization.
Does the FCA advice portray cryptocurrencies in a bad light or is it a nuanced and visceral assessment of the market? Share your views with the community in the comment section below.
Images courtesy of Financial Times, Shutterstock