The United Kingdom Treasury has proposed changes to the country’s anti-money laundering framework, expanding the regime to capture a broader range of digital asset activities, including non-fungible token (NFT) issuance.
Her Majesty’s Treasury’s consultation paper delved into improving the effectiveness of the country’s Money Laundering Regulations 2017 (MLRs). It also discussed how to best integrate the MLRs with the Financial Services and Markets Act 2000 (FSMA), the law that gives the Financial Conduct Authority (FCA) jurisdiction over financial institutions.
The FCA’s supervisory rules are duplicated under the two regimes, according to the Treasury. Specifically, digital asset firms must seek fresh registration with the agency under the MLRs, even if they are FSMA-authorized.
This duplication was among the challenges that participants in the government’s Digital Securities Sandbox last year raised.
To address this, the Treasury proposes that virtual asset service providers (VASPs) only need FSMA authorization to engage in digital asset businesses. This will also apply to firms involved in other financial services that wish to delve into ‘crypto.’
The paper further proposes expanding the net to include firms dealing in NFTs. Currently, NFTs that may not be used for any financial services fall outside the FSMA regime. NFT issuers “will still need to be registered and supervised by the FCA for anti-money laundering and counter-terrorist financing purposes.”
In its consultation paper last October, the Treasury exempted NFTs from consideration as financial services unless used for regulated financial activities, such as instances where NFTs signify ownership of assets.
The new AML proposals come as a blockchain analysis revealed that U.K. digital asset custodian Copper Technologies moved $4.2 million in ‘crypto’ linked to a Russian arms dealer.
The analysis, conducted by the International Consortium of Investigative Journalists (ICIJ), revealed extensive links to Jonatan Zimenkov, an Israeli-born Russian national sanctioned by the U.S. last year for playing a key part in Russia’s invasion of Ukraine.
Copper was founded in the U.K., and last year, it recruited the former Chancellor of the U.K. Exchequer, Phillip Hammond, as chair. The company had applied for a license from the FCA but withdrew it last year and moved operations to Switzerland.
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