In the public mind, dealing in crypto-assets has something of the wild west about it. As an Upper Tribunal (UT) ruling showed, however, regulators are swiftly catching up with the burgeoning new business and are taking effective steps to ensure that it does not become a focus for money laundering.
The case concerned a small company that was in the business of operating crypto-asset automated teller machines in high street off-licences. Users of the machines were able to exchange ordinary currency for cryptocurrency. The company applied to the Financial Conduct Authority (FCA) to be registered as an authorised crypto-asset exchange provider under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).
Such registration was required following an amendment to the MLRs which took effect in January 2020 and which was designed to address the regulatory challenge posed by the trade in crypto-assets. When the FCA refused the company’s application, its temporary licence to engage in such trade instantly terminated. However, it applied to the UT for the effect of the decision to be suspended pending an appeal.
Ruling on the matter, the UT noted that the FCA refused the application on the basis that it was not convinced of the adequacy of the company’s anti-money laundering systems and controls. It raised concerns regarding the probity of the company’s senior manager and considered that he had not shown he had the skills, knowledge and experience required to ensure compliance with the company’s obligations under the MLRs. Overall, it was not satisfied that either the company or the senior manager were fit and proper persons to operate a cryptocurrency exchange business.
In refusing to grant the suspension sought, the UT found that the company had failed to discharge the burden of showing that the interests of the public in being protected from money laundering, and the integrity of the UK financial system, in preventing it from being used to launder money, would not be prejudiced if the application were granted. It was of particular concern that the senior manager had candidly admitted having misled banks as to the true nature of the company’s business.
Case notes:
Gidiplus Limited v The Financial Conduct Authority. Case Number: UT-2021-000193