FCA - New Regulations Explained

Over the past few years, the Financial Conduct Authority (FCA) has looked into expanding the Anti-Money Laundering rules (AML) to firms dealing with cryptocurrencies. On January 10th, 2020, the FCA became the Anti-Money Laundering and Counter-Terrorist Financing (AML/CTF) supervisor for these crypto-assets firms.

The FCA created a Temporary Registration Regime to concede existing crypto-asset firms, which have applied to be registered with the FCA, to continue trading. It is important to note that this Temporary Registration Regime is only available to existing crypto-asset firms which have applied for registration before December 15th, 2020. New firms will need to obtain full registration with the FCA before conducting business.

Since January 10th, 2020, existing firms carrying on crypto-asset activities in the United Kingdom, including Lykke, were required to be compliant with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, as amended (MLRs) including the requirement to be registered with the FCA by 9th of January 2021. Only firms registered with the FCA or on FCA’s list of firms with temporary registration can continue trading. 

It is important to highlight that having done the temporary registration does not automatically mean the FCA has approved the company. This registration enables Lykke and other firms to continue to trade from January 9th, 2021 until July 9th, 2021, pending FCA’s determination of the application.

The list of crypto-asset firms with temporary registration is available here.

What does it mean for Lykke?

As Lykke is a crypto-asset business carrying on the activity of a crypto-asset exchange provider and custodian wallet provider, we must comply with the MLRs from January 10th, 2020. Among other things, this includes for instance the following:

  • Take appropriate steps to identify and assess the risks of money laundering (ML) and terrorist financing (TF) which the business is subject to.
  • Assess the ML / TF risks related to any new technologies before launch and take appropriate measures to manage and mitigate those risks,
  • Demonstrate to its supervisor that it has policies, controls, and procedures in place to effectively manage ML and TF risks proportionate to the size and nature of its business’ activities.
  • Carry out regular assessments of our policies, controls, and procedures to ensure that these remain relevant and appropriate. 
  • Be alert to any change in FCA’s operating model that may have an impact on the way we conduct our business.
  • Undertake customer due diligence (CDD) when entering into a business relationship or occasional transactions. 
  • CDD and other measures employed by Lykke may include the following: Know your customer (KYC); blockchain analysis; source and destination of funds; and ongoing monitoring. 

What does it mean for Lykke’s Customers?

Essentially, nothing changes from a customer perspective, as Lykke had already implemented the necessary measures in advance and continuously strives to meet the requirements concerning combating ML and TF. 

However, since Lykke’s crypto-asset activities do not fall within the scope of the Financial Ombudsman Services (FOS) or the Financial Services Compensation Scheme (FSCS), the FOS and FSCS do not apply to the crypto-asset activities carried on by Lykke, and as such, your account is not protected by the FSCS, and you will have no recourse to the FOS in the event of a complaint relating to Lykke’s services. On this note, Lykke has updated its Terms and Conditions to fully inform its customers that the Financial Ombudsman Service or the Financial Services Compensation Scheme do not apply to the crypto-asset activities carried on by Lykke. These changes will come into immediate effect. 

The amended section of the Terms and Conditions is the “What Participants need to be aware of” section and it reads as follows:

"Lykke, as a crypto asset business in the UK, complies with the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations of 2017, as amended (“MLRs”). These regulations are designed to prevent the use of Lykke for money-laundering or terrorist-financing activities. Notwithstanding the above, the Services we provide are currently not regulated by the Financial Conduct Authority (“FCA”) or any other authority within the UK.

According to regulation 60A of the MLRs, cryptoasset activity does not fall within the scope of the Financial Ombudsman Services (“FOS”) or the Financial Services Compensation Scheme (“FSCS”). As such, your account is not protected by the FSCS, and you will have no recourse to the FOS in the event of a complaint relating to the Lykke’s Services."

Lykke will continue to operate under a temporary licensing regime, in compliance with Regulation 56 of the MLRs, which will last until the 9th of July 2021, pending the FCA's decision on the application. 

In the meantime, Lykke will continue to monitor regulatory developments closely and will keep its customers informed of the FCA's final decision on its status, and, if needed, implement the necessary regulatory and legal adjustments. 

About Lykke

Lykke is a fintech company bridging the gap between traditional finance and blockchain. Lykke runs a proprietary exchange where clients can buy, sell and store many types of tokenized assets, amongst them cryptocurrencies. Lykke Business offers cutting edge technology solutions for enterprises in the dynamic financial, consumer, and service sectors. By leveraging the power of a broader ecosystem, Lykke’s platforms eliminate barriers to market entry, solve inefficiencies within current economic systems and democratize access to digital asset marketplaces.

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