The UK Treasury has released a consultation paper outlining proposed changes to money laundering regulations, with a focus on regulating crypto-assets more effectively. These proposed changes stem from a review of the Money Laundering, Terrorist Financing, and Transfer of Funds (Payer Information) Regulations 2017 (MLR) conducted in 2022. The aim of the revisions is to establish a "smarter regulation" framework, characterized by reducing regulatory burdens and ensuring that regulation is utilized as a last resort rather than the initial option.
The consultation paper underscores the importance of a robust regulatory regime to support the Ministry of Land and Resources. It outlines various potential modifications to the regulation of cryptoasset service providers. Currently, the Financial Conduct Authority (FCA) oversees certain institutions under regulations enacted in 2017 and the Financial Services and Markets Act 2000 (FSMA). However, many cryptocurrency firms operate outside of FCA oversight and are thus subject to MLR regulations. The proposed changes would require agencies regulated by the Ministry of Land and Resources to also be regulated by the FCA, eliminating the need for separate authorization from the former.
Under the existing FSMA regime, cryptoassets fall under FCA control if they serve as the underlying asset or property of a regulated activity or financial instrument. The proposed amendments would expand the scope of the FSMA to cover additional activities, such as the operation of crypto asset exchanges and custody services. Furthermore, cryptoasset providers not currently regulated by the FCA would need to register with the authority to come under MLR regulation.
Differences between assessments under MLR and FSMA are highlighted in the consultation paper, particularly in terms of the types of entities subject to control and the thresholds for such control. The document raises the question of whether maintaining two distinct standards of control is advisable. It suggests aligning MLR requirements more closely with those of the FSMA to streamline regulatory processes and ensure consistency across the regulatory landscape.
