Financial Action Task Force Says UK Must Improve AML/CTF Strategies For Crypto

December 11, 2018 8:25 PM

The Financial Action Task Force (FATF), a France-based intergovernmental financial security body, released its latest report evaluating the UK’s cryptocurrency regulations, anti-money laundering (AML) rules, and counter-terrorist financing (CTF) measures. While receiving the highest rating possible in four out of the eleven areas of the report, and the second-highest rating in a further four areas, the FATF asked that the UK continue to improve its cryptocurrency sector after finding problems with the country’s strategies toward AML/CTF.

The FATF report acknowledges the UK’s own national risk assessments (NRAs), which identified a low risk in new payment methods such as electronic money and virtual currencies being used for money laundering or terrorist financing. The report also notes that while there is an emergent risk with the country’s virtual currency exchange providers not being covered by existing AML/CTF requirements, “there is not yet evidence to suggest that broad scale [money laundering]/[terrorist financing] is occurring in the UK through this relatively small sector.” The UK does intend to regulate virtual currency exchange providers after implementing the European Union’s (EU) fifth AML Directive, the report states.

However, while the country has a “robust understanding” of the risks of money laundering and terrorist financing through cryptocurrencies, the task force found that sectors of the economy such as high-value dealers and real estate agents did not understand the risks associated with cryptocurrency-based money laundering, and how to mitigate them. The report states, “Persisting gaps in understanding across the [high value dealer] industry are an ongoing vulnerability, with the truncated time period available to conduct [customer due diligence] exacerbating the vulnerability.” It also notes that the UK’s estate agent businesses are “not always in the best position to detect [money laundering] or conduct [customer due diligence].”

Furthermore, the FATF questioned the UK Financial Intelligence Unit’s handling of money laundering and terrorist financing suspicion reports. The FATF explains:

“[T]he UK has made a deliberate policy decision to limit the role of the UK Financial Intelligence Unit (UKFIU) in undertaking operational and strategic analysis which calls into question whether suspicious activity report (SAR) data is being fully exploited in a systematic and holistic way and providing adequate support to investigators. … the SAR regime requires a significant overhaul to improve the quality of financial intelligence.”

According to Reuters, in October, the FATF announced it would issue guidelines for global cryptocurrency regulation in June 2019. The guidelines will seek to limit the use of virtual currency in money laundering and terrorist financing, as well as outline how to govern crypto exchanges, ICOs, and wallets.

Nicholas Ruggieri studied English with an emphasis in creative writing at the University of Nevada, Reno. When he’s not quoting Vines at anyone who’s willing to listen, you’ll find him listening to too many podcasts, reading too many books, and crocheting too many sweaters for his dogs, RT and Peterman.

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