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Thought Leadership

CRYPTO-FOCUS: FCA publishes a consultation paper on the recovery of costs of supervising crypto-asset businesses under 5AMLD

Posted on 6 Jan 2020

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On 15 October 2019, the FCA published its consultation paper outlining its fee proposals for recovering the costs of supervising crypto-asset businesses.

The FCA has consulted on this as it is now the anti-money laundering and counter-terrorist financing (AML/CTF) supervisor of UK crypto-assets businesses under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) as of 10 January 2020. This is due to evidence of increased risks due to the growing use of cryptocurrencies for illicit activities and the subsequent risks to consumers and markets. The FCA is seeking to cover the costs of supervision as it is entirely funded by the fees and levies from the firms it regulates.

Registration

This means that crypto-asset businesses operating in the UK, already or intending to carry on crypto-asset activities from 10 January 2020, need to apply to the FCA to be registered for AML/CTF purposes. This includes any business that is already registered or authorised by the FCA for any other activity.

New businesses intending to carry out crypto-asset activities after 10 January 2020 will be required to obtain FCA authorisation before commencing those activities. This is particularly the case if the business is using security tokens or e-money tokens.

An existing business already carrying out crypto-asset activities before 10 January 2020 must be registered with the FCA by 10 January 2021 or cease carrying out the activity.

Assessment

As part of its supervision of crypto-asset businesses, the FCA will require businesses to demonstrate that it has policies, controls and procedures in place to effectively manage AML/CTF risks in line with the nature, scale and complexity of the activities and that it is able to identify, assess, monitor and effectively manage the financial crime risks to which it is exposed. The FCA will also review the steps taken by businesses to identify AML/CTF risks. This includes the business carrying out regular assessments of its policies and procedures to ensure they remain relevant and appropriate. The business should also notify the FCA of any change in its operations that will have an impact on the way it conducts business.

Registration Fee

The FCA proposes to distribute recovery of the costs of setting up and operating the registration process across all applicants. The FCA currently has approximately 80 applicants and estimates the cost at £400,000. Given this, the FCA proposes to set a registration fee of £5,000. The fee is needed to complete the application for registration and the FCA will not issue its decision until the fee is paid. Application forms can be found on Connect. Responses to the FCA’s proposed registration fee have now closed and the FCA will publish feedback and the legal instrument in a Handbook Notice in December.

Periodic Fees

The FCA will also charge ongoing periodic fees, up to a certain amount of income. Fee-payers may pay a fixed minimum fee plus a variable fee on any income above the threshold. The FCA is currently proposing a minimum fee of £1,000 on income up to £100,000.

5AMLD and Laven

Laven has been working with managers in the digital asset and crypto space having been at the forefront of the industry since its beginnings. We have recently appeared in the FCA’s ‘Guidance on Crypto Assets’ published earlier this year as a key correspondent showing out prominence in the space. Laven offers the following services in the crypto sector:

Due Diligence

Laven has over a decade of experience carrying out due diligence reviews of managers who work with a variety of different asset classes. Laven has adapted this process to enable an efficient review of a Fund holding digital asset classes including Operational Due Diligence, Investment Due Diligence and Operational Assessment.

Compliance

Laven’s hybrid approach to compliance fusing technology and subject matter expertise ensured that our compliance package was easily tailored to a firm managing digital assets. Leveraging the knowledge we have accumulated in the digital asset space through the due diligence reviews and our advanced knowledge of regulatory compliance, we have created a world-class infrastructure to ensure compliance when dealing with Digital Assets.

Online Training

Laven’s AML and Market Abuse training modules will make sure our clients are fully trained for the 5AMLD’s implementation date in January 2020. With nearly 1000 users of our online training we are confident we can bring the right amount of knowledge and testing to help our clients. 

Laven’s Crypto Roundtable

Laven hosts a regular invitation-only roundtable that consists of twenty experts working in fund management involving digital assets.

If you are interested in any of our Crypto services or attending our next roundtable please contact our Marketing Team at info@lavenpartners.com.