Implementation of the EU’s Fifth Money Laundering Directive on 10 January 2020 is now fast approaching. To the Financial Conduct Authority’s long list of responsibilities has been added the role of anti-money laundering (AML) supervisor of UK crypto-asset businesses. With this in mind, the FCA has published a new webpage setting out key information for businesses. This includes the crypto-asset activities likely to fall within scope although these will not be definitely known until HM Treasury publishes its 5MLD Policy Statement later this year, together with a timeline for registration.

The crypto-asset activities expected to fall within the AML regime are:

  • crypto-asset exchange provider – the exchange of fiat currency for a crypto-asset or vice versa and (which goes further than 5MLD) exchanging one crypto-asset for another crypto-asset;
  • crypto-asset Automated Teller Machines (ATM) – i.e., physical kiosks that allow users to exchange crypto-assets and fiat currencies;
  • custodian wallet providers – businesses that look after a customer’s tokens within its IT system or server that may administer or transfer tokens for customers;
  • peer to peer providers – businesses providing online marketplaces to facilitate the exchange of fiat currencies and cryptoassets (again this refers to both fiat-to-crypto and crypto-to-crypto); and
  • issuers of new crypto-assets, e.g. an Initial Coin Offering or Initial Exchange Offering in exchange for fiat currency.

There had been some concern that HM Treasury’s wide definition of crypto-assets, which goes beyond 5MLD, would potentially capture businesses publishing open-source software. Potentially, this could include applications that can be downloaded onto a customer’s device to store or administer a token. Helpfully, the FCA say they understanding that this is unlikely to come within the Treasury’s final scope.

Businesses that are busy implementing other change projects, such as preparing for Brexit, will be pleased to learn that there is to be a period of grace. Crypto-asset businesses operating before 10 January 2020 may continue in business, complying with the Money Laundering Regulations (MLRs), but need not complete registration with the FCA until 10 January 2021. When businesses apply for registration, the FCA will have three months to assess the application (e.g. whether the applicant is fit and proper and the adequacy of their AML systems and controls). This compares to the current period of 45 days in the MLRs and probably, reflects an attempt to reduce the administrative burden on the regulator as well as the technical complexity of business models in the sector. To encourage early applications, those received prior to 3 June 2020 will be given priority treatment. On the other hand, 10 October 2020 will be the latest date for complete applications to be determined in time for the 10 January 2021 deadline. Given that the clock can be stopped if the FCA considers an application to be incomplete all businesses would be well advised to apply ahead of next autumn.

While existing businesses may enjoy a period of grace with respect to registration, there will be no such treatment with respect to compliance and enforcement after 10 January 2010 – although if firms are not registered this does beg the question about how the FCA will be aware of their activities? In any event, we are promised that the FCA’s supervision will be in line with its approach to other businesses under the MLRs, where an increasing readiness to bring enforcement action is evident.

There is also a warning that businesses should take care not to mislead customers about their regulatory status. Registration with and supervision by the FCA for AML purposes is not the same as authorisation to carry on a regulated activity, that potentially affords customers recourse to the Financial Services Compensation Scheme and the Financial Ombudsman Service. In July 2019, the FCA published guidance on crypto-assets setting out their position on crypto-assets regarding the regulatory perimeter – an analysis that is centred on categorising crypto-assets as exchange, utility and security tokens.

Many firms in the sector have welcomed the extension of AML regulation in the hope that it will facilitate their access to financial services e.g. banking. Similarly, in the expectation the FCA will take a risk-based and proportionate approach to AML supervision which is vital if the sector is to continue to develop.


Sarah Williams is an associate in the financial services practice in London. Sarah advises a broad range of clients on financial services legal and regulatory issues. Sarah's practice includes advising on the regulation of payment services and electronic money, investment firms and consumer credit providers and anti-money laundering compliance issues.


Richard Powell is a knowledge lawyer within Baker McKenzie's global financial services regulatory group where he is responsible for supporting and developing the group's legal and technical knowledge. Previously he was a member of the UK Financial Conduct Authority's Enforcement Division where he advised on regulatory cases. He has also been an editor of Bloomberg Law's UK Financial Services Law Journal.