FCA has written a “Dear CEO” letter on the financial crime risks of crypto-assets. The letter notes the scope for cryptoassets to be used for both criminal purposes and non-criminal purposes that nonetheless present the risk for abuse. The letter sets out what FCA regards as good practice for how banks handle these risks.
The letter suggests:
- that firms should consider enhanced scrutiny of clients who derive significant business activities or revenues from crypto-related activities. For example, relevant staff may need to develop their knowledge and expertise so they could identify high risk areas, firms should engage with clients to understand their business and the risks it poses, carry out appropriate due diligence and ensure their financial crime frameworks reflect the risks and can keep pace with developments; and
- that firms should be proactive in assessing the risks posed by customers who hold or trade cryptoassets or whose wealth derives from selling them. Firms should use the same criteria to assess source of wealth as they use for other assets, and no apply a different test just because the evidence trail behind crypto-transactions may be weaker. Systems and controls should identify as a high-risk indicator any evidence that a customer is using a state-sponsored cryptoasset designed to evade financial sanctions.
The letter also reminds firms that retail customers contributing significant amounts to ICOs may be at greater risk of investment fraud.