The UK Treasury has published a new report which explicitly states that bitcoin wallet providers won’t have to deal with any anti-money laundering (AML) rules, which according to the Treasury could potentially put them at risk of being overburdened.
In the Action Plan for anti-money laundering and counter-terrorist finance report from the Treasury, they stated the following in regards to bitcoin exchanges and specifically the last sentence in regards to bitcoin wallet providers:
We intend to bring digital currency exchange firms into anti-money laundering regulation, as it is at the point where users “cash in” and “cash out” of digital currency networks that money laundering and terrorist finance risk is highest. This is consistent with a risk-based approach, and we note that extending the perimeter of anti-money laundering regulations beyond digital currency exchange firms (e.g. to wallet providers) would not deliver any benefits in terms of mitigating money laundering and terrorist finance risk, and would place significant burdens on firms in this innovative and embryonic sector.
The remarks made by the Treasury should be a sigh of relief for bitcoin wallet companies based and operating in the United Kingdom, who have been in the dark in how they should operate their business in regards to compliance.
The UK Treasury launched a Call for Information in 2014 on the benefits and risks associated with digital currencies. The Treasury said that respondents to the Call for Information identified that digital currencies and associated technologies such as the blockchain have the potential to deliver real benefits for businesses and consumers. Responses also highlighted that some features of digital currencies could provide opportunities for illicit use.
The Treasury said in response, “[HM Treasury] notes this potential risk, while acknowledging that evidence from across government, law enforcement and academia suggests that there is currently a low level of illicit activity in digital currency networks.”
Also in the report, the UK Treasury said that they plan to bring bitcoin exchange companies “into anti-money laundering regulation,” reinforcing plans they announced last year. In the report the Treasury outlines their intention to improve government intelligence when it comes to money laundering, with greater and better use of sensitive intelligence, greater exploitation of SARs, enhanced intelligence exchanges with the financial and legal sectors, including through JMLIT; and closer co-operation with domestic and international partners.
Pictured above is a report of how many suspicious activity reports (SARs) were reported to the UK Financial Intelligence Unit from 2013-2015. It’s clear from the report that although bitcoin wallets are going to be less scrutinized than first thought, bitcoin exchanges will more than likely face more scrutiny in the future.
Overall, the UK has been embracing bitcoin and blockchain technology recently with their open arms toward fintech. Due to this, there has been an overwhelming saturation of bitcoin exchanges in the United Kingdom.
By our count, there are least 25 bitcoin exchanges based in the UK. Just today, bitcoin exchange Bitstamp announced that they were granted a license to be a fully regulated and licensed exchange in the EU.