Vol 20 (2023) - Issue 4

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Money Laundering Risks and Solutions in the Cryptocurrency Era – Part Two: UK Regulatory Gaps and Solutions for Money Laundering Risks Associated with Cryptocurrencies

Synopsis
Cryptocurrencies are one of the largest technological inventions in recent years. Their spread across international markets raises the necessity to develop and implement efficient regulatory frameworks that address money laundering risks associated with cryptocurrencies. The first part of this article outlines the unique features of cryptocurrencies and blockchain technology, and how illicit actors exploit these feature to launder money. This second part of this article presents a comparative analysis of the United Kingdom's (UK) regulatory framework against key jurisdictions around the world. Following the identification of regulatory gaps and weaknesses that need to be addressed, a set of recommendations are made for effectively dealing with this issue.
The analysis of the UK regulatory framework highlights the following four regulatory gaps and weaknesses that allow illicit actors to commit money laundering, in particular: (a) cryptoasset exchange providers and custodian wallet providers ('Cryptoasset Companies') are not required to assign compliance officers; (b) there are no specific regulatory requirement for senior managers to possess, obtain and/or update their knowledge and competence of regulatory requirements relating to cryptocurrency transactions; (c) the UK does not implement additional customer due diligence measures in relation to Cryptoasset Companies and other virtual asset service providers ('VASPs'); (d) the UK does not enhance the requirement to record details of cryptocurrency transactions within sufficient period of time.
Based on the aforementioned identified weaknesses, this article proposes a set of solutions that aim to address the identified UK regulatory weaknesses and gaps, while reducing the money laundering risks associated with cryptocurrencies and blockchain technology.
Within this context, the proposed solutions focus on the improvement of daily compliance management, enhanced qualification requirements for senior managers, the improvement of customer due diligence measures through implementation of additional customer due diligence measures in relation to Cryptoasset Companies and other VASPs, and finally focusing on efficient recording of cryptocurrency transaction's details in order to ensure efficient analysis of cryptocurrency transactions and proper investigation.