UK Financial Conduct Authority Warns Banks Against Crypto Risksbr>
The UK Financial Conduct Authority (FCA) has issued a letter to bank CEOs to advise them about the risks associated with cryptocurrencies.
The letter acknowledged that there are many non-criminal motives for using cryptocurrencies, including using them as high-risk speculative investments or as a means of funding innovative technological development.
However, the regulator said that the anonymity feature of cryptocurrencies and the ability to move money between countries can also be abused. In this regard, the regulator advised bank CEOs to take reasonable and proportionate measures to lessen the risk of their firm facilitating crypto-enabled financial crimes.
The FCA said banks should enhance their scrutiny of current or prospective clients who derive significant business activities or revenues from crypto-related activities. Appropriate steps to lessen the risk of financial crime include developing staff knowledge and expertise on cryptocurrencies, ensuring that existing financial crime frameworks adequately reflect the crypto-related activities which the firm is involved in, carrying out due diligence, and engaging with clients to understand the nature of their businesses.
“Following a risk-based approach does not mean banks should approach all clients operating in these activities in the same way,” the regulator said. “Instead, we expect banks to recognize that the risk associated with different business relationships in a single broad category can vary, and to manage those risks appropriately. ”
The reguator also flag a few “high-risk” indicators including a customer or client using a state-sponsored cryptocurrency, “which is designed to evade international financial sanctions,” and retail customers contributing large sums to initial coin offerings (ICO). The regulator said ICOs involve a “heightened risk of falling victim to investment fraud.”
Last month, the FCA revealed that it has launched investigations into 24 different crypto-related businesses over financial regulatory compliance. In December 2017, the regulator warned crypto investors about the risks of losing all their money, claiming that bitcoin is a bubble, and an “odd” commodity, citing its scarcity.