EG 19.15 1The conduct of investigations under the Money Laundering Regulations

1The FCA will notify the subject of the investigation that it has appointed officers to carry out an investigation under the Money Laundering Regulations and the reasons for the appointment, unless notification is likely to prejudice the investigation or otherwise result in it being frustrated. The FCA expects to carry out a scoping visit early on in the enforcement process in most cases. The FCA's policy in civil investigations is to use powers to compel information in the same way as it would in the course of an investigation under the Act.

3Where the FCA considers it appropriate to do so, it will exercise its powers under regulation 74C of the Money Laundering Regulations, to impose a direction on a cryptoasset business or Annex 1 financial institution 4to ensure requirements of the Money Laundering Regulations are met. The FCA will exercise this power where:

1. (1)

   it has serious concerns about the cryptoasset business or Annex 1 financial institution’s 4 compliance with the Money Laundering Regulations;

2. (2)

   it is concerned that a failure of the cryptoasset business or Annex 1 financial institution 4to take the desired steps may result in a breach of the Money Laundering Regulations;

3. (3)

   the imposition of a direction reflects the importance the FCA attaches to the need for the cryptoasset business or Annex 1 financial institution 4to address its concerns;

4. (4)

   the imposition of a direction may assist the cryptoasset business or Annex 1 financial institution 4to take steps which would otherwise be difficult because of legal obligations owed to third parties.

3The FCA will also exercise its powers to:

1. (1)

   vary a direction; or

2. (2)

   cancel a direction,

where it considers it appropriate to do so.

3Examples of circumstances in which the FCA will consider imposing a direction on a cryptoasset business and Annex 1 financial institution 4because it has serious concerns about a cryptoasset business or Annex 1 financial institution4, or about the way its business is being or has been conducted include where the cryptoasset business or Annex 1 financial institution 4appears to be failing, or appears likely to fail, to comply with requirements under the Money Laundering Regulations, because:

1. (1)

   it appears to have consistently failed to comply with requirements of the Money Laundering Regulations and in doing so, it may have put itself at risk of being used for the purposes of money laundering,4 terrorist financing or proliferation financing4;

2. (2)

   its personnel do not appear to have adequate skills and experience to carry on cryptoasset business or an Annex 1 financial institution’s business4; or

3. (3)

   it appears to have breached requirements imposed on it by or under the Money Laundering Regulations, for example in respect of disclosure requirements about the applicability of the jurisdiction of the Financial Ombudsman Service to its cryptoasset business, or Annex 1 financial institution, 4 and whether it is subject to FSCS protection.

3The FCA may impose a direction so that it takes effect immediately or on a specified date if it reasonably considers it necessary to do so, having regard to the ground on which it is exercising this power.

3The FCA will consider imposing a direction as a matter of urgency where:

1. (1)

   the information available to it indicates serious concerns about the cryptoasset business or Annex 1 financial institution 4 that need to be addressed immediately; and

2. (2)

   circumstances indicate that it is appropriate to impose a direction immediately to require and/or prohibit certain actions by the cryptoasset business or Annex 1 financial institution 4to ensure the cryptoasset business or Annex 1 financial institution 4addresses these concerns.

3The FCA will consider the full circumstances of each case when it decides whether an urgent imposition of a direction is appropriate. The following is a non-exhaustive list of factors the FCA may consider:

1. (1)

   The extent of any loss, or risk of loss, or other adverse effect on consumers caused by the failure to adhere to the Money Laundering Regulations. The more serious the loss or potential loss or other adverse effect, the more likely it is that the urgent imposition of a direction will be appropriate, to protect the consumers’ interests.

2. (2)

   The extent to which customer assets appear to be at risk due to the failure to comply with the Money Laundering Regulations. Urgent imposition of a direction may be appropriate where the information available to the FCA suggests that customer assets held by, or to the order of, the cryptoasset business or Annex 1 financial institution 4may be at risk.

3. (3)

   The nature and extent of any false or inaccurate information provided by the cryptoasset business or Annex 1 financial institution4. Whether false or inaccurate information warrants the urgent imposition of a direction will depend on matters such as:

   1. (a)

      the impact of the information on the FCA’s view of the cryptoasset business or Annex 1 financial institution’s 4 compliance with the requirements of the Money Laundering Regulations, or the likelihood that the cryptoasset business or Annex 1 financial institution 4may be being used in connection with financial crime;

   2. (b)

      whether the information appears to have been provided in an attempt knowingly to mislead the FCA, rather than through inadvertence;

   3. (c)

      whether the matters to which false or inaccurate information relates indicate there is a risk to customer assets or to the other interests of the cryptoasset business or Annex 1 financial institution’s 4 actual or potential customers.

4. (4)

   The seriousness of any suspected breach of the requirements of the Money Laundering Regulations and the steps that need to be taken to correct that breach.

5. (5)

   The financial resources of the cryptoasset business or Annex 1 financial institution4. Serious concerns may arise where there is a likelihood of the cryptoasset business or Annex 1 financial institution’s 4 assets being dissipated without the FCA’s intervention.

6. (6)

   The risk that the cryptoasset business or Annex 1 financial institution 4may be used or has been used to facilitate financial crime, especially money laundering,4 terrorist financing or proliferation financing4. The information available to the FCA, including information supplied by other law enforcement agencies may suggest the cryptoasset business or Annex 1 financial institution 4 is being used for, or is itself involved in financial crime. Where this appears to be the case, and the cryptoasset business or Annex 1 financial institution 4appears to be failing to comply with requirements of the Money Laundering Regulations or has put its customers’ interests at risk, the FCA’s urgent imposition of a direction may be appropriate.

7. (7)

   The risk that the cryptoasset business or Annex 1 financial institution’s 4 conduct or business presents to the UK financial system and to confidence in the UK financial system.

8. (8)

   The cryptoasset business or Annex 1 financial institution’s 4 conduct. The FCA will take into account:

   1. (a)

      whether the cryptoasset business or Annex 1 financial institution 4 identified the issue (and if so whether this was by chance or as a result of the cryptoasset business or Annex 1 financial institution’s 4 normal controls and monitoring);

   2. (b)

      whether the cryptoasset business or Annex 1 financial institution 4brought this issue promptly to the FCA’s attention;

   3. (c)

      the cryptoasset business or Annex 1 financial institution’s 4 past history, management ethos and compliance culture;

   4. (d)

      steps that the cryptoasset business or Annex 1 financial institution 4has taken or is taking to address the issue.

9. (9)

   The impact that the imposition of a direction will have on the cryptoasset business or Annex 1 financial institution’s 4 business and on its customers. The FCA will need to be satisfied that the impact of any use of the direction power is likely to be proportionate to the concerns being addressed, in the context of the overall aim of achieving its statutory objectives.

3Examples of directions that the FCA may consider imposing in support of its enforcement function are: a direction not to take on new business; a direction that prohibits the disposal of, or other dealing with, any of the cryptoasset business or Annex 1 financial institution’s 4 assets (whether in the United Kingdom or elsewhere) or restricts those disposals or dealings; and a direction that all or any of the cryptoasset business or Annex 1 financial institution’s 4 assets, or all or any assets belonging to consumers but held by the cryptoasset business or Annex 1 financial institution 4to its order, must be transferred to a trustee approved by the FCA.

1When the FCA proposes or decides to censure a person,2 impose a penalty on a person, suspend, cancel or restrict an authorisation or registration or impose a prohibition on a person2 under the Money Laundering Regulations, it must give the person a warning notice or a decision notice2.

1When imposing or determining the level of a financial penalty under regulation 76 of the Money Laundering Regulations2, the FCA's policy includes having regard, where relevant, to relevant factors in DEPP 6.2.1G and DEPP 6.5 to DEPP 6.5D. The FCA may not impose a penalty where there are reasonable grounds for it to be satisfied that the subject of the proposed action took all reasonable steps and exercised all due diligence to ensure that the relevant requirement of the Money Laundering Regulations would be met. In deciding whether a person has failed to comply with a requirement of the Money Laundering Regulations, the FCA must consider whether he or she2 followed any relevant guidance which was issued by a European Supervisory Authority in accordance with articles 17, 18.4 or 48.10 of the Fourth Money Laundering Directive, with article 25 of the Funds Transfer Regulation, or with any relevant guidance which was issued at the time by2 a supervisory authority or other appropriate body, including the2 Joint Money Laundering Steering Group2.

2When cancelling, suspending or restricting an authorisation or limitation under regulation 77 of the Money Laundering Regulations or determining the duration of any such suspension or restriction, and when imposing or determining the duration of a prohibition under regulation 78 of the Money Laundering Regulations, the FCA’s policy includes having regard, where relevant, to relevant factors in DEPP 6A.

1As with cases under the Act, the FCA may settle or mediate appropriate cases involving civil breaches of the Money Laundering Regulations or the Funds Transfer Regulation2 to assist it to exercise its functions under the Money Laundering Regulations2 in the most efficient and economic way. The settlement discount scheme set out in DEPP 6.7 applies to penalties, suspensions, restrictions and temporary prohibitions2 imposed under regulations 76, 77 and 78 of2 the Money Laundering Regulations.

1The FCA will apply the approach to publicity that it has outlined in EG 6, read in the light of applicable publicity provisions in regulation 84 of the Money Laundering Regulations2.