UK: New Rules for Cryptocurrency Exchanges

The United Kingdom’s financial authorities, the Treasury’s Office of Financial Sanctions Implementation, introduced new guidelines for the operation of cryptocurrency exchanges in the country. The new rules stipulate numerous restrictions and requirements regarding sanctions regimes and oblige all exchanges and wallets operating in the UK to report on violations.

The new guidelines have seen the tightening of AML requirements and imply responsibility for any manner of violation of sanctions regimes. The new rules, however, do not provide any clarity regarding the consequences financial services providers might face in case of failure to report.

In short, the main reason for the tightening of the regulations is the imposition of sanctions by the United Kingdom against the Russian Federation. The punitive measures are meant to detract exchanges from operating with citizens of sanctioned countries and to prevent cases of money-laundering. The list of sanctioned countries extends well beyond the Russian Federation and includes such states as Belarus, Burundi, the Central African Republic, and others.

Exchanges will be obliged to report on any suspicious transactions and freeze funds and accounts of target individuals until further notice pending the investigation. The same will apply to custodial wallets that will be included in the new reporting requirements. In order to comply with the new requirements, exchanges will be forced to introduce more KYC and KYT processes and conduct data drilling on each transaction so as to avoid any faults in the preliminary investigation. Customer risk assessment will also have to be updated and will have to take into account the sanctions regimes and new money laundering possibilities.

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