Top officials of UK-based banks received a letter earlier this week from the country’s financial regulator and watchdog, the Financial Conduct Authority (FCA). The letter, addressed to chief executives of all FCA-regulated banks, calls for utmost precaution while serving clients engaged in crypto-related activities.
Examples of such clients include digital currency exchanges, ICOs, and investors trading “crypto assets.”
Follow Good Practices to Reduce Risks
Despite being touted as one of the biggest advantages of crypto, decentralized transactions have a downside too. The lack of a central banking institution to oversee proceedings makes it somewhat easier for mischievous elements to conduct shady transactions — more so considering that most countries, including the UK, are yet to come up with any concrete regulatory policies to govern the ever-expanding crypto market.
The FCA letter, dated June 11, 2018, takes that factor into account and emphasizes the importance of good banking practices to minimize the risk of unlawful use of cryptocurrencies. Regarding banking services related to crypto assets, the FCA pointed out that banks should up their game while evaluating clients whom they provide these services too.
It outlined a few specific services that could use some extra attention during scrutiny, including digital currency exchanges that convert between fiat and crypto, as well as any trading activity involving wealth derived from digital assets.
List of Appropriate Steps
The FCA recommended a number of measures that banks can undertake to ensure smooth handling of existing or prospective clients who generate significant revenues from the digital asset market. One such step is to educate bank staff on the technical and financial aspects of the crypto economy while simultaneously training them to evaluate each service request based on the existing financial crime framework.
Besides recommending appropriate steps to avoid high-risk crypto-related transactions, the FCA letter also highlighted certain red flags that banks should be aware of. These include retail customers with a significant investment in ICOs.
The letter warned:
“Retail customers contributing large sums to ICOs may be at a heightened risk of falling victim to investment fraud.”
Additionally, it also asked banks to tread carefully while dealing with customers in possession of large amounts of state-sponsored digital assets designed to evade international financial sanctions (such as Venezuela’s Petro).