Over the past two years there has been a rise in new cryptoasset services and service providers. With the increasing confidence that cryptoasset services are here to stay, the perception is that they will revolutionise how the financial services industry operates. Furthermore, businesses that are already registered or authorised with the Financial Conduct Authority (FCA) for other activities (e.g., e-money institutions, payment services and FSMA firms) and wish to carry out relevant Crypto Services activities, will be required to obtain additional registration.
What does this mean for the regulators?
This presents significant challenges to the regulators. However, in their effort to protect the customers, the regulators have and are making great progress in understanding the full extent of the risks represented by cryptoasset activities and how cryptoassest firms operate. The FCA, and other regulators, require that cryptoasset firms operate in a regulated market, aligned with the Money Laundering Regulations (MLR) which, for the UK, include the Proceeds of Crime Act 2002.
What does the FCA require after Temporary Registration?
Temporary registrations were granted until 31st March 2022 to existing cryptoasset firms (those who were carrying on MLR cryptoasset business immediately before 10th January 2020) whose applications are pending determination.
The FCA requires that all new businesses (that began operating after 10th January 2020) obtain a full registration before they can conduct cryptoasset business in the UK.
Once a cryptoasset firm has obtained full registration to operate in the UK, this is when it faces the real challenges i.e., to develop, maintain and operate a robust financial crime framework and demonstrate that effective controls are in place.
This can be a very costly and challenging process that is often overlooked and understated. Additionally, it is likely that the regulators (including the FCA) will apply close scrutiny, to ensure that all the newly registered cryptoasset firms are aligned with the Money Laundering Regulations and operating with appropriate controls to fully protect their money and customers.
How Lysis can help?
Lysis has been, and continues to be, successful in assisting clients with complex and contentious regulatory issues. We have built up significant expertise in the cryptoasset space, providing hands-on experience in this very dynamic market.
Our experienced team continues to help cryptoasset firms achieve two main objectives:
Obtain full registration to operate in a number of jurisdictions, primarily in the UK.
Once registered, operate in a regulated market safely and cost effectively.
Cryptoassets: AML/CTF regime: Registration
We helped a number of cryptoasset firms with the registration process, primarily in the UK, including Digivault which was one of the first to obtain registration with the FCA. For registration in the UK, cryptoasset firms are subject to fit and proper requirements under Regulation 58A of the MLRs.
From experience, we believe that a successful registration requires careful planning and preparation so that the documentation submitted for review is fit for purpose, correctly responding to the test questions.
In addition, the application must be prepared to provide the regulator with clarity of the business purpose and activities of the firm, demonstrating a good understanding of the risks and effectiveness of controls.
Lysis can provide guidance and practical help to ensure your preparation for the application meets the regulator’s standards for a successful registration. This includes:
Detailed review of requirements and expectations;
Management of application process from requirements to submission; and
Review and, if necessary, redrafting of documents to ensure that they meet the regulator’s requirements and expectations.
Cryptoassets - AML/CTF regime: Operating in a regulated market
It is essential that once the application for registration is either under review or successful, the cryptoasset firms continue to build a robust, yet flexible financial crime framework to demonstrate the effectiveness of their anti-financial crime and anti-money laundering controls.
Lysis’ experienced team assists firms to design, implement and embed effective financial crime frameworks, to build efficiencies and controls proportionate with the risks. This allows the business to continue its focus on providing enhanced customer experience whilst safeguarding its customers, the business and its employees.
Lysis can assist with the following areas:
Strategy and Objectives to manage financial crime and compliance risk;
Customer Lifecycle Management design, implementation and optimisation;
Financial Crime and Compliance Policies and Procedures drafting, review and uplift;
Financial Crime and Compliance Governance, helping informed decision and resolution;
Processes, Systems and Controls design, implementation and optimisation; and
Resources, People and Culture.
For further information and to discuss how we can help you, please contact:
Gabriel Cozma, Head of Lysis Financial at email@example.com