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FCA warns banks about financial crime risks posed by cryptocurrencies

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The UK’s financial watchdog has issued its latest warning on cryptocurrencies, informing British banks about the potential risks posed by this new asset class.

In a letter addressed to bank chief executive officers, the Financial Conduct Authority (FCA) recommended a number “good practices” designed to help banks mitigate the financial crime risks posed by digital currencies.

While the regulator acknowledged that there were many “non-criminal motives’ for using cryptocurrencies, it also warned that “this class of product can also be abused because it offers potential anonymity and the ability to move money between countries”.

The regulator advised that banks might need to increase their scrutiny of clients offering crypto-related services. The FCA recommended a number of appropriate actions that banks may consider in order to mitigate the risk of financial crimes. Some of those include: developing staff knowledge and expertise on cryptocurrencies to help them identify the clients or activities that pose a high risk of financial crime; updating their existing financial crime frameworks to ensure that they reflect crypto-related activities and engaging with clients to understand the nature of their business and the risks they pose.

“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 recognise that the risk associated with different business relationships in a single broad category can vary, and to manage those risks appropriately,” the FCA said.

When dealing with retail customers who are engaged in crypto trading, banks should consider customers who contribute large sums to initial coin offerings (ICOs) as being more likely to fall victims to investment fraud. Meanwhile, if a firm identifies that a customer or client is using a state-sponsored digital currency which is designed to “evade international financial sanctions”, it should consider it as another high-risk indicator.

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