The U.K.'s Financial Conduct Authority (FCA) has written to bank CEOs over the potential risks they face when dealing with cryptocurrencies.
As the British regulator for around 58,000 financial services firms and financial markets in the U.K., the FCA has issued formal warnings before on the risks of investing in cryptocurrencies.
In this latest warning, the FCA addresses the banks specifically and urges greater scrutiny of client and customer activities if they are deemed to be dealing in what the agency calls "cryptoassets."
For bank clients who offer services to consumers in cryptocurrencies, appropriate steps to lessen the risk of financial crime include, "carrying out due diligence on key individuals in the client business" and "ensuring that existing financial crime frameworks adequately reflect the crypto-related activities which the firm is involved in."
While acknowledging that not all businesses and individuals holding or trading in cryptocurrencies would pose the same degree of risk, the FCA did flag a few "high-risk" indicators. These include a client using a state-sponsored cryptocurrency, "which is designed to evade international financial sanctions" – presumably a hint that trading Venezuela's petro token will get your account closed.
Another red-flag cited includes retail customers seen to send large sums to token sales, or initial coin offerings (ICOs). According to the FCA letter, these customers are at a "heightened" risk of investment fraud.
Not all motives for using cryptocurrencies are criminal in nature, it continues, but given the "potential anonymity and the ability to move money between countries," the FCA expects financial firms to exercise "particular care" when dealing with cases involving cryptocurrencies.
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