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Money laundering guidance published for cryptoasset exchange providers

Out-Law News | 23 Mar 2020 | 7:31 pm | 1 min. read

The UK’s Joint Money Laundering Steering Group (JMLSG) has published proposed new guidance on money laundering regulations for cryptoasset exchange providers and custodian wallet providers in the wake of new legislation.

The JMSLG has opened a consultation into sectoral guidance which will fit into its existing overall guidance. The new guidance takes into account The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 which brings cryptoasset exchange providers and custodian wallet providers into scope of the Money Laundering Regulations.

The guidance (11 page / 238KB PDF) sets out factors that give rise to money laundering and terrorist finance risks for cryptoassets, such as the ability to transact anonymously, the decentralised and cross-border nature of the sector,

It also outlines specific higher-risk factors which it says firms should have regard to, including when customers use encrypted email accounts, send cryptoassets to a newly created address, or avoids ‘know your client’ (KYC) thresholds through smaller transactions.

Firms should be able to prepare customer risk profiles based on information obtained through customer due diligence measures, and should screen customers against industry-specific blacklists, said the JMSLG.

Product, transaction, geographical and delivery channel risk also all need to be taken into account, according to the consultation document.

The guidance also offers providers advice on the application of customer due diligence and KYC measures, record keeping, and dealing with suspicious transactions.

Financial regulation expert Andrew Barber of Pinsent Masons, the law firm behind Out-Law, said: “Given the importance of the JMLSG’s sectoral guidance, all cryptoasset exchange providers and custodian wallet providers that are now in scope of the Money Laundering Regulations should take the time to read the consultation text.”

Barber said it was important for providers to send comments to the JMLSG by the consultation closing date of 18 May in order to ensure any concerns with the text were addressed before the guidance was published in final form.

The JMSLG guidance follows guidance from the Financial Conduct Authority published last year, aimed at financial services firms carrying out cryptoasset activities in the UK.