UK Treasury suggests revamping regulations for crypto assets and combating money laundering.
The Treasury of the United Kingdom has published a consultation paper outlining proposed changes to regulations on money laundering, which will have significant implications for the oversight of crypto assets. These amendments are based on the findings of a thorough review of the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) conducted in 2022. The objective of these changes is to introduce “smarter regulation,” reducing regulatory burdens, ensuring the longevity of regulations, and creating a regulatory environment that prioritizes accountability and responsiveness.
One key aspect of these proposed changes is the enhancement of the supervisory and registration framework for crypto firms. The consultation paper highlights the importance of a robust supervisory system to strengthen the effectiveness of the MLRs. Under the current regulations established in 2017, the Financial Conduct Authority (FCA) oversees institutions under both the MLRs and the Financial Services and Markets Act 2000 (FSMA).
Significantly, the paper suggests that while institutions regulated under the MLRs would still require FCA oversight, they would no longer need to seek MLRs authorization. This simplification aims to streamline the regulatory supervision of crypto asset service providers.
The paper outlines a shift in the regulatory landscape for crypto assets. Currently, crypto assets fall under the jurisdiction of the FCA only when used as the underlying asset for regulated activities or financial instruments. The proposed regulatory changes would expand the scope of the FSMA to include new activities such as the operation of crypto asset exchanges and custody services. As a result, crypto assets that were not previously subject to FCA oversight would be required to register with the FCA for MLRs supervision.
The consultation paper also addresses the existing disparity between assessments conducted under the MLRs and the FSMA, particularly regarding control eligibility and control thresholds. The paper explores the feasibility of maintaining two separate control standards or aligning the MLRs requirements more closely with those of the FSMA. This alignment aims to unify regulatory standards and control mechanisms across the financial industry.
As previously reported, the United Kingdom has also released a consultation paper to examine the integration of the Organization for Economic Co-operation and Development’s (OECD) cryptocurrency reporting standards into its legal and financial framework. The UK Treasury predicts that this integration will significantly increase revenue, with an estimated rise of £35 million ($45 million) between 2026 and 2027, and a further increase of £95 million between 2027 and 2028.
The implementation of the OECD framework aims to enhance existing guidelines on offshore accounts, facilitating more efficient sharing of cryptocurrency transaction data across jurisdictions. This initiative is part of a broader effort to address the gaps in tax transparency resulting from the rapid growth of fintech and the expanding global crypto asset market. By aligning with international standards, the UK aims to strengthen its financial system against the challenges posed by these technological advancements and ensure a robust and fair tax collection mechanism.
