The UK Financial Conduct Authority has issued a letter to banks highlighting the potential of cryptoassets to be used for illicit activities and urging them to enhance their scrutiny when dealing with clients engaged in crypto-related activities.

Underscoring the anonymity feature of cryptoassets, the regulator said:

“You should take reasonable and proportionate measures to lessen the risk of your firm facilitating financial crimes which are enabled by cryptoassets.”

The FCA outlined a number of measures which banks should undertake to better handle situations when they offer their services to current or prospective clients who derive significant business activities or revenues from crypto-related activities. This includes developing staff knowledge and expertise on cryptoassets, ensuring that existing financial crime frameworks adequately reflect the cryptorelated activities which the firm is involved in, carrying out due diligence, and engaging with clients to understand the nature of their businesses.

For customers or clients involved in holding or trading cryptoassets, the regulator said:

“Firms should assess the risks posed by a customer whose wealth or funds derive from the sale of cryptoassets, or other cryptoasset-related activities, using the same criteria that would be applied to other sources of wealth or funds.”

Last month, the FCA revealed that it has launched investigations into 24 unauthorized cryptocurrency businesses. In September 2017, the FCA issued a warning against Initial Coin Offerings (ICOs), stating that whether an ICO falls within its regulatory boundaries or not can only be decided case by case. More recently, it issued an official statement on the requirement for firms offering cryptocurrency derivatives to be authorised.