In the report, the Financial Conduct Authority said it considered that cryptoasset firms, as well as  retail banking (including payments), wholesale banking and wealth management "remained particularly vulnerable to financial crime and posed the greatest risk of being exploited for money laundering."

The government updated proceeds of crime and terror legislation, making it easier for UK law enforcement to effectively investigate, seize and recover illicit cryptoassets.

These changes include:

• police will no longer be required to make an arrest before seizing crypto from a suspect – this will make it easier to take assets which are known to have been criminally obtained, even if sophisticated criminals are able to protect their anonymity or are based overseas;
• items that could be used to give information to help an investigation, such as written passwords or memory sticks, can be seized;
• officers will be able to transfer illicit cryptoassets into an electronic wallet which is controlled by law enforcement, meaning criminals can no longer access it;
• UK law enforcement will be able to destroy a crypto asset if returning it to circulation is not conducive to the public good - privacy coins, for example, are a form of cryptocurrency that grant an extremely high degree of anonymity and are often used for money laundering;
• victims will also be able to apply for money belonging to them in a cryptoassets account to be released to them.

The FCA is proposing updates to the Financial Crime Guide in relation to sanctions, proliferation financing and transaction monitoring, as well as adding references to cryptoassets and the Consumer Duty, along with consequential changes throughout the Guide.

With these changes, the FCA wants to:

• help firms understand what we expect;
• help firms assess the adequacy of their financial crime systems and controls; and
• remedy deficiencies.

Deadline for comments is 27 June 2024.

The Act has introduced provisions for police and the National Crime Agency to seize cryptoassets more easily and convert them into money before a forfeiture hearing has taken place. In exceptional circumstances, there will also be a power to destroy seized cryptocurrency.

The NCA’s National Assessment Centre estimates that over £1 billion of illicit cash was transferred overseas using cryptoassets in 2021.

The FCA identified examples of both good practice and areas for improvement under 5 key themes: 

• Governance and oversight
• Skills and resources
• Screening capabilities
• Customer Due Diligence (CDD) and Know Your Customer (KYC) procedures
• Reporting breaches to the FCA

From 1 September 2023, cryptoasset businesses in the UK will be required to collect, verify and share information about cryptoasset transfers. The FCA expects firms to:

• Take all reasonable steps and exercise all due diligence to comply with the Travel Rule.
• Firms remain responsible for achieving compliance with the Travel Rule, even when using third-party suppliers.
• Fully comply with the Travel Rule when sending or receiving a cryptoasset transfer to a firm that is in the UK, or any jurisdiction that has implemented the Travel Rule.
• Regularly review the implementation status of the Travel Rule in other jurisdictions and adapt business processes as appropriate.

When sending a cryptoasset transfer to a jurisdiction without the Travel Rule:

• Take all reasonable steps to establish whether the firm can receive the required information. 
• If the firm cannot receive the necessary information, the UK cryptoasset business must still collect and verify the information as required by the Money
• Laundering Regulations (MLRs) and should store that information before making the cryptoasset transfer.

When receiving a cryptoasset transfer from a jurisdiction without the Travel Rule:

• If the cryptoasset transfer has missing or incomplete information, UK cryptoasset businesses must consider the countries in which the firm operates and the status of the Travel Rule in those countries.
• The UK cryptoasset business should take these factors into account when making a risk-based assessment of whether to make the cryptoassets available to the beneficiary.

The FCA has been working with the Joint Money Laundering Steering Group (JMLSG) and HM Treasury on guidance to help firms comply with the Travel Rule. Firms have until 25 August 2023 to add their comments on the guidance.