PERG 18.12 Interaction with the Money Laundering Regulations

Question 12.1: Does the definition of ‘cryptoassets’ in the Money Laundering Regulations capture the same types of assets as the Act and the Regulated Activities Order?

The Money Laundering Regulations and the Act regimes will continue to operate concurrently as the regimes do already. A person undertaking an activity involving ‘cryptoassets’ will need to determine whether those activities fall within the scope of one or both of the Money Laundering Regulations, and the Act and the Regulated Activities Order.

Under the Money Laundering Regulations, ‘cryptoassets’ are defined as a cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and can be transferred, stored or traded electronically. In practice, this may be expected to capture a range of cryptoassets, including exchange tokens, stablecoin tokenised e-money, non-fungible tokens (NFTs), limited network tokens (LNTs – ie, cryptoassets that can only be redeemed with the issuer or used to acquire goods or services within a limited network), and some distributed ledger technology (DLT) records.

Question 12.2: If I am exchanging limited network tokens, do I need to register under the Money Laundering Regulations if this type of asset is not a ‘qualifying cryptoasset’ under the Regulated Activities Order?

Limited network tokens are excluded from the definition of ‘qualifying cryptoasset’ (see PERG 18.4) and, as a result, activities carried on in relation to these tokens would not constitute one of the new regulated cryptoasset activities, meaning permission under Part 4A of the Act would not be needed. However, Money Laundering Regulations registration may be required, because the regimes are not identical in scope even if they both broadly relate to cryptoassets.

A person will need to assess the registration requirements under the Money Laundering Regulations separately from the requirements for authorisation under the Act and the Regulated Activities Order.

Question 12.3: Will cryptoasset firms still need to comply with the Money Laundering Regulations if they are authorised under the Act?

Yes. Similar to many other authorised persons under Part 4A of the Act and firms registered under the Money Laundering Regulations, an authorised cryptoasset firm or a specified investment cryptoasset firm (as defined in the Money Laundering Regulations) will need to comply with the Money Laundering Regulations where that authorised cryptoasset firm or specified investment cryptoasset firm will act, or will continue to act, as a cryptoasset exchange provider or custodian wallet provider under the Money Laundering Regulations.

Question 12.4: If I am currently registered as a cryptoasset exchange provider under the Money Laundering Regulations, what permissions under the Act will I need?

Each registered cryptoasset exchange provider will need to assess their current and proposed operating models against the requirements for authorisation under the Act and the Regulated Activities Order.

The types of activities that may be relevant for a cryptoasset exchange provider include, but are not limited to, operating a qualifying CATP, dealing in qualifying cryptoassets as principal, dealing in qualifying cryptoassets as agent, arranging deals in qualifying cryptoassets, arranging qualifying cryptoasset staking and issuing a qualifying stablecoin.

Question 12.5: If I am currently registered as a custodian wallet provider under the Money Laundering Regulations, what permissions under the Act will I need?

Each registered custodian wallet provider will need to assess their current and proposed operating models against the requirements for authorisation under the Act and the Regulated Activities Order. The type of activity that may be relevant for custodian wallet providers is safeguarding cryptoassets.

Question 12.6: If I am authorised for regulated cryptoasset activities under the Act, do I also need to register under the Money Laundering Regulations?

Where an authorised cryptoasset firm or a specified investment cryptoasset firm will also act as a cryptoasset exchange provider and/or a custodian wallet provider under the Money Laundering Regulations, that person will not need to separately undertake registration under the Money Laundering Regulations. However, they must notify the FCA that they intend, or have begun, to act as a cryptoasset exchange provider or a custodian wallet provider, either before, or within 28 days of, doing so. Cryptoasset exchange providers and custodian wallet providers that are exempt from separate registration under the Money Laundering Regulations must comply with the remaining provisions in the Money Laundering Regulations.

Question 12.7: If I am not authorised for regulated cryptoasset activities under the Act but will act as a cryptoasset exchange provider or custodian wallet provider, do I need to register under the Money Laundering Regulations?

Cryptoasset exchange providers and custodian wallet providers that are not authorised cryptoasset firms or specified investment cryptoasset firms are required to be registered with the FCA under the Money Laundering Regulations.

Question 12.8: What steps must I take if I am an authorised person with permission to carry on one or more regulated cryptoasset activities, or one or more regulated activities, in relation to specified investment cryptoassets, but will cease to act as a cryptoasset exchange provider or custodian wallet provider?

Where an authorised cryptoasset firm or a specified investment cryptoasset firm ceases to act as a cryptoasset exchange provider or a custodian wallet provider, it must inform the FCA within 28 days, beginning with the day of ceasing to act as such.

Question 12.9: If I benefit from an exclusion under the Regulated Activities Order, how does that affect my position under the Money Laundering Regulations?

There are various exclusions that apply to the new regulated cryptoasset activities in the Regulated Activities Order. These include the exclusions that apply to each of the new regulated cryptoasset activities (such as article 9Z and article 9Z1), as well as the exclusions at article 42A and article 72AA. The Money Laundering Regulations do not include equivalent exclusions that apply to the cryptoasset exchange provider and custodian wallet provider activities. A person who benefits from an exclusion under the Regulated Activities Order will need to separately consider whether they are required to apply to the FCA for registration under the Money Laundering Regulations as a cryptoasset exchange provider or a custodian wallet provider.

Question 12.10: If I am conducting regulated cryptoasset activities from overseas, but serve UK customers, do I need to follow the Money Laundering Regulations obligations, and will I be within scope of the Act?

The geographic scope of the Money Laundering Regulations and the Act, the Regulated Activities Order and the Financial Promotion Order regimes are different and therefore could potentially capture different natural and legal persons when conducting the activities under the respective pieces of legislation. The Money Laundering Regulations apply to cryptoasset exchange providers and custodian wallet providers who are based in the UK, and to firms where the firm’s registered office (or head office) is in the UK and the day-to-day management is taking place from that registered office, head office or another establishment maintained by the firm in the UK. In contrast, the broader geographic perimeter for regulation under the Act focuses on persons who are, or who are deemed to be, ‘carrying on activities by way of business’ in the UK. Therefore, the geographic scope of the perimeter under the Act is different from that under the Money Laundering Regulations and will need to be considered in each case.

Question 12.11: Is the meaning of ‘by way of business’ in the Money Laundering Regulations the same as the ‘by way of business’ test for the new regulated activities?

As explained at PERG 18.2, the Cryptoassets Regulations apply a narrower concept of what ‘by way of business’ means for the new regulated cryptoasset activities than the business test that would otherwise apply under the Act. Persons who are not acting by way of business for the purpose of the new regulated cryptoasset activities will need to separately consider whether they are acting by way of business for the purposes of regulation 14A (Cryptoasset exchange providers and custodian wallet providers) of the Money Laundering Regulations. Persons will also need to consider whether they are ‘acting in the course of business’ and ‘carrying on business’ for the purposes of regulations 8 (Application) and 9 (Carrying on business in the United Kingdom) of the Money Laundering Regulations.