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The regulatory landscape of the UK
Firms that engage in crypto asset related activities in the UK must formally register with the Financial Conduct Authority (FCA) after which these firms can apply for an 'Authorized Payment Institutions' license. This is also applicable to firms that are already registered or authorised by the FCA (e.g., e-money institutions, payment services and FSMA firms) and wish to carry out relevant crypto service activities.
In addition, the FCA, and other regulators, require that crypto asset firms operate in a regulated market, that is aligned with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (as Amended) (MLRs) which include the Proceeds of Crime Act 2002. Crypto asset firms are also subject to fit and proper requirements under Regulation 58A of the MLRs.
Due to the ever-changing nature of the crypto asset environment, temporary registrations were granted to existing crypto asset firms up until 31st of March 2022, specifically to firms that were engaged in MLR crypto asset activities, immediately before 10th January 2020, where applications were still pending determination. However, the FCA requires that all new firms that began operating after the 10th of January 2020 to obtain full registration before they can conduct crypto asset business in the UK.
The Financial Action Task Force (FATF) published their ‘Targeted update on implementation of the FATF Standards on Virtual Asset Service Providers (VASPs) in June 2022. The UK determined that updating the existing MLR’s was more practical than trying to update the EU Funds Transfer Regulations and, maintains all rules/legislation relating to crypto asset firms under one legislation. As a result, the HM Treasury has confirmed that it will move ahead with the implementation of the long awaited ‘travel rule’ for crypto asset wire transfers in the UK.
The Travel Rule requires VASPs and other financial institutions to share relevant originator and beneficiary information alongside virtual asset transactions, therefore hampering criminal and terrorist activities and will be effective from 1 September 2023 (after the 12-month grace period).