UK financial regulator has written to the heads of banking institutions in the country on how to handle and mitigate the financial crime risks posed by cryptocurrencies such as Bitcoin or Ether as well as related products.
The Financial Conduct Authority (FCA) said there are many non-criminal motives for using cryptoassets, but these also pose risks as it offers potential anonymity and the ability to move money between countries.
The letter issued by Executive Directors of Supervision, Jonathan Davidson and Megan Butler, urged banks to enhance scrutiny of clients and their activities while offering services to current or prospective clients who conduct crypto-related activities.
The FCA says, "Following a risk-based approach does not mean banks should approach all clients operating in these activities in the same way. Instead, we expect banks to recognize that the risk associated with different business relationships in a single broad category can vary, and to manage those risks appropriately."
On the individual or retail customers, the FCA advised banks to assess the risks posed by a customer whose wealth or funds are derived from the sale of cryptoassets or related activities.
The regulator added that retail customers contributing large sums to Initial Coin Offerings (ICOs) may also be at a heightened risk of falling victim to investment fraud.
The FCA encouraged banks to develop staff knowledge and expertise on cryptoassets to help them identify the clients or activities which pose a high risk of financial crime.
It also urged them to carry out due diligence on key individuals in the client business, including taking into account any adverse intelligence.
"One way cryptoassets differ from other sources of wealth is that the evidence trail behind transactions may be weaker. This does not justify applying a different evidential test on the source of wealth and we expect firms to exercise particular care in these cases," the FCA said.
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