United Kingdom’s Recent Rules on Cryptoassets
By Raffaella Aghemo on The Capital
Similar to what happened in another countries, on 10 January 2020, in the United Kingdom, the new Amendment 2019 to the MLR, Money Laundering and Terrorist Financing Regulations of 2017, enacted on 20 December 2019, came into force, which aims to update the regulation of Cryptoasset Exchange Providers (CEPs) and Custodian Wallet Providers (CWPs) as well as entities implementing an ICO, in order to comply and transpose EU Directive 2018/843 into UK money laundering legislation.
The provision gives the appropriate definitions of CEP, CWP and cryptoasset in advance.
CEP: “a firm or individual professional who, on a commercial basis, provides one or more of the following services, including where the firm or individual professional does so as the creator or issuer of any of the “cryptoasset” involved, when providing such services:
(a) exchanging, or arranging or making arrangements with a view to exchanging cryptoasset for money or money with cryptoasset,
(b) exchanging, or arranging or making arrangements with a view to exchanging one cryptoasset for another, or
© operating a machine that uses automated processes to exchange cryptoasset for cash or cash with cryptoasset. “
CWP: “a firm or a single professional who, in a commercial capacity, provides services to safeguard, or safeguard and administer:
(a) cryptoasset on behalf of its customers, or
(b) private cryptographic keys on behalf of its customers for the purpose of storing, archiving and transferring cryptocurrency when it provides such services. “
Cryptoasset: “a cryptographically protected digital representation of the contractual value or rights, using a form of distributed accounting technology and may be transferred, stored or exchanged electronically”.
From these definitions we can immediately see the broadening of the current regulations, not only to suppliers engaged in exchange services between cryptoassets and fiat currencies, but also to suppliers engaged in crypto to crypto exchange services, expressly capturing also people “who operate a machine that uses automated processes to exchange cryptoassets for money or money with cryptoassets”, including, for example, operators of cryptoasset cash machines (Bancomat Crypto).
In addition, the transitional arrangements indicate that existing CEPs and CWPs will not be required to register with the FCA until 10 January 2021 (although the FCA encourages existing companies to apply for registration by 30 June 2020). Like Consob in Italy, the FCA will be responsible for monitoring and supervising these operators, proactively overseeing companies’ compliance with the new regulations, and will act swiftly if companies fail to meet desired standards and cause risks to market integrity.
The information to be provided by operators during registration, the outcome of which will have a maximum response time of three months after submission, will include:
The company’s operational programme.
· Business Plan (definition of business objectives, customers, employees, governance, plans, and projections).
· Structural organization including outsourcing agreements.
· Systems and controls including details of IT security policies and procedures (with a view to enhanced cybersecurity and cyberesilience).
· Individuals, beneficial owners, and close links: (Administrators and all other persons who are or will be responsible for management will be required to demonstrate to the FCA that they have a good reputation and have the appropriate knowledge and experience to act in this capacity).
In this perspective of transparency, another prerequisite for the MLR is customer due diligence, which is required from companies when they carry out an ‘occasional transaction’ or establish a ‘business relationship’, obtaining and verifying basic information about a customer (name, date of birth and address of residence).
The comparative analysis of the new regulations on crypto activities shows broad acceptance of the “crypto” phenomenon, but also a firm intention of supervision and control!
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Raffaella Aghemo, Lawyer