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UK Regulator Advises Banks to “Enhance Your Scrutiny” When Dealing with Crypto Firms

The Financial Conduct Authority, a financial industry regulator in the UK, has called for appropriate caution and enhanced scrutiny from banks as they handle firms engaged in crypto trading. In an open letter to CEOs, the FCA’s Executive Directors of Supervision, Megan Butler and Jonathan Davidson, listed a number of measures that banks can take to shield themselves from the dangers that emanate from firms that deal in crypto assets. While appreciating the value of digital currencies as speculative investments and as a means of raising funds for startups, the FCA also noted that cryptos are prone to abuse from malicious parties due to their anonymity.

Due Diligence and Client Engagement are Key

The FCA began by defining crypto-focused clients as those “who derive significant business activities or revenues from crypto-related activities.” They include clients who operate crypto exchanges which facilitate the conversion of fiat to crypto, those who engage in trading, and those who issue ICOs.

While the banks’ conduct is expected to differ as they handle different clients, the FCA suggested a number of measures they can take to reduce their risk. Key among them is developing their staff and giving them sufficient knowledge regarding the crypto industry. This will help them identify activities that pose a high risk of facilitating financial crime.

According to the regulator, banks should also engage their clients so that they can better understand the nature of the businesses they engage in and the potential risks they pose. Due diligence is also important, with the FCA advising banks to collect adverse intelligence on the key individuals involved in clients’ businesses. When dealing with crypto exchanges, banks should also inquire about and consider “the adequacy of those clients’ own due diligence arrangements.”

While the regulator expects the banks to follow the suggested measures, it recognizes that application will differ among banks as their client needs vary. One of the areas in which variation is expected to be greatest pertains to handling clients whose source of wealth is the trading of digital assets. The banks must, however, not change the existing criteria for other sources of wealth such as inheritances or property transactions. Banks must exercise extreme care when dealing with crypto wealth, as the evidence trail behind such transactions may be weaker than that of other channels. Of particular risk are clients who use state-sponsored digital assets to evade international financial sanctions.

The letter concluded by urging banks to refer to the Financial Services Authority’s 2012 guidelines on how banks should handle the risk of investment fraud. This will help them to better handle clients who invest huge sums of money in ICOs and are “at a heightened risk of falling victim to investment fraud.”

The Bank of England has called for more regulation of the crypto industry, with Governor Mark Carney saying it would combat illegal activities and promote crypto’s smooth integration into the mainstream financial system. The BoE has in the past said that its assessment concluded that cryptocurrencies do not pose any risk to the monetary and financial system in the UK, but that it does for individual investors, who must exercise caution when investing.

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A U.S.-based cryptocurrency investor and entrepreneur has filed a multi-million-dollar lawsuit against telecommunications firm AT&T. Michael Terpin believes that he became the victim of a theft in which a large amount of digital currency was taken from him due to the company’s negligence. Terpin Believes He Was the Victim of a SIM Swap Fraud Michael Terpin has brought legal action against the U.S. telecommunications provider AT&T. The investor and early cryptocurrency advocate filed a 69-page complaint with the U.S. District Court in Los Angeles. During the document, Terpin claims that a large number of digital coins and tokens were stolen from him on January 7, 2018. It goes on to state that AT&T are guilty of gross negligence and fraud, which resulted in the loss of a substantial amount of cryptocurrency. According to Reuters, AT&T responded via email to the complaint by stating: “We dispute these allegations and look forward to presenting our case in court.” The filing claims that Terpin was the victim of a SIM swap fraud that was made possible by the negligence of AT&T. Such a scam involves fraudsters convincing a mobile phone provider to switch a user’s phone number to another SIM card which is under their control. Scammers can then use the number to reset login information for various accounts, allowing them to access them. Michael Terpin is the co-founder of BitAngels – an early angel group for Bitcoin investors. He also helped to set up the first digital currency fund, the BitAngels/Dapps fund in 2014. Today, Terpin is one of the Alphabit Fund’s top advisers. According to the court documents, a total of three million digital tokens were taken from Terpin. Back in January, these were worth around $23.8 million collectively. The filing also states that Terpin is seeking an additional $200 million in punitive damages. Whatever the outcome of Terpin’s court case, it illustrates the dangers of keeping large amounts of digital assets anywhere but in properly secured cold storage. The precise details of the storage of Terpin’s tokens are not currently known. However, any solution which could be comprised by SIM swap fraud is evidently not secure enough. Terpin’s missing funds join the other $1.2 billion plus of cryptos stolen from poorly secured storage solutions since 2017. The case also highlighted a need for adequate custody services in the cryptocurrency industry. This is seen by many as one of the most important steps to opening cryptocurrencies to a wider group of investors. Many do not have the technical knowledge required to set up totally secure paper wallets. Others simply shirk the responsibility of being the sole participant responsible for the safety of their digital wealth. The industry is responding, however. Already this year, NewsBTC has reported on efforts by Circle, Coinbase, and Blockchain to facilitate secure storage for large net-worth individuals and institutions. Featured image from Shutterstock. The post US Investor Files Lawsuit Against AT&T Over Cryptocurrency Theft appeared first on NewsBTC.

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