The UK’s Financial Conduct Authority (FCA) issued a letter on Monday to bank CEOs over the potential risks that they face when dealing with cryptocurrencies.
A Letter from the FCA
Criminal activities are synonymous with cryptocurrency use and the letter is said to suggest “good practice” that banks can follow to be vigilant against these activities.
According to the FCA, the letter details how firms should handle financial crime that may occur as a result of “cryptoassets,” which the FCA defines as cryptocurrencies or any type of “publicly available electronic medium of exchange that features a distributed ledger and a decentralized system for exchanging value.”
The letter warns that although cryptocurrency-related investments can be used for “non-criminal motives,” they can be “abused because it offers potential anonymity and the ability to move money between countries.”
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The Warnings
Firms are advised to increase reviewing measures on customers with cryptocurrencies, to perform their due diligence on crypto-related activities.
Several of the recommended steps include developing the knowledge and judgement of the banks staff “on cryptoassets to help them identify the clients or activities which pose a high risk of financial crime” and “ensuring that existing financial crime frameworks adequately reflect the crypto-related activities which the firm is involved in,” while also keeping up-to-date with new developments and standards.
One specific high-risk indicator of fraud mentioned by the FCA is if a customer is using a state-sponsored cryptocurrency “which is designed to evade international financial sanctions.”
It has also been warned that retail customers who contribute large sums to ICOs, or Initial Coin Offerings, are at a “heightened risk” of becoming victims to investment fraud.
The letter has also stated that firms should be able to assess and manage the risks associated with customers and businesses that are involved in cryptocurrency-related activities.
The FCA regulates over 58,000 businesses and is the prudential regulator to approximately 1,500 banks, building societies, credit unions, insurers and major investment firms. As a prudential regulator, the FCA is meant to promote the safety and soundness of those firms.
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