On 15 October 2019, the Financial Conduct Authority (“FCA”) published consultation paper CP19/29: Recovery of costs of supervising cryptoasset businesses under the proposed anti-money laundering regulations: fee proposals (“CP19/29”).
In summary, CP19/29 sets out that “cryptoasset businesses” must:
- Apply to and register with the FCA;
- Be under the supervision of the FCA with respect to anti-money laundering and counter terrorist financing (“AML/CTF”) activities;
- Pay an initial registration fee; and
- Pay an ongoing annual fee.
CP19/29 is part of the implementation of the Fifth Money Laundering Directive (“5MLD”) which shall be implemented by amending the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“MLRs”).
Who will be affected?
The Treasury are still determining which “cryptoasset activities” will be included in the scope of the MLRs and constitute “cryptoasset businesses”. As a result, the scope of “cryptoasset business” was consulted on in a Treasury Consultation Paper on 15 April 2019 but the result is awaiting confirmation. However, the FCA assumes for CP19/29 that the definition will apply to:
- Cryptoasset exchange providers;
- Cryptoasset Automated Teller Machine operators;
- Cryptoasset custodian wallet providers;
- Peer-to-peer cryptoasset providers;
- Issuers of new cryptoassets, e.g. Initial Coin Offering or Initial Exchange Offering; or
- Publishers of certain open-source software, e.g. non-custodian wallet providers.
What are the key dates?
The key dates are as follows:
- Firms which carry out “cryptoasset business” prior to 10 January 2020:
- must comply with the MLRs from 10 January 2020;
- must be registered with the FCA by 10 January 2021;
- the FCA will work with applicants who submit an application for registration before 30 June 2020 to ensure they have all information necessary by 10 October 2020 to meet the 10 January 2020 deadline (assuming registration assessments take three months, as currently expected (see below));
- Firms which had not previously been carrying out “cryptoasset business” but intend to after 10 January 2020:
- must register with the FCA before carrying out any of those activities; and
- All “cryptoasset businesses”, whether registered or unregistered:
- may be subject to enforcement action from the FCA in relation to any non-compliance with the MLRs from 10 January 2020 onwards.
With respect to the FCA registration, applicants should note that:
- Applications will be available on the FCA’s Connect system (date to be confirmed);
- Registration assessments are likely to take three months (however early applications are recommended to meet registration deadlines);
- Once an application is submitted online, the FCA may request further information; and
- A decision on an application will not be issued until the full registration fee is paid.
When applying to be registered, businesses will be required to demonstrate the following:
- they have effective policies, procedures, and controls in place to manage AML/CTF risks in a way that is proportionate to their business;
- they can identify, assess, monitor, and effectively manage their financial crime risks;
- they have taken appropriate steps to identify AML/CTF risks to the business; and
- they carry out regular assessments of its policies and procedures in the light of any change in their operating environments.
Registration and ongoing fee
The FCA proposes a registration fee of £5,000 (based on its estimation that the total cost of the registration process will be approximately £400,000 and 80 potential applicants), although this sum is to be consulted on further.
The FCA also proposes ongoing fees which are set to be based on income arising from cryptoasset business. It is currently proposed that the minimum amount of this fee should be £1,000, although this sum is also to be consulted on further.
The consultation is now open and the FCA is accepting responses to its proposals on the registration fee and periodic fee:
- the consultation on the registration fee closes on 11 November 2019 and the FCA intends to publish feedback in its Handbook Notice in December 2019; and
- the consultation on periodic fees closes on 10 December 2019, after which the FCA intends to provide commentary in its fee-rates consultation paper in April 2020.
Cryptoasset firms will need to be prepared for the registration process and will need to prepare their AML/CTF policies and procedures before any application is submitted. Firms will also need to be prepared for greater scrutiny of their AML/CTF policies and processes going forward.
Existing cryptoasset firms should also submit applications sooner as a delay in the application process could result in the firm being unable to operate until it has been approved.
Co-authored by Janice Pang.