U.K.'s Financial Conduct Authority Releases Cryptocurrency Guidelines for Banks

The emergence of the crypto market has disrupted the banking industry, with a lot of illicit activities happening across this relatively new ecosystem. In an attempt to protect banks from criminals, the U.K.’s Financial Conduct Authority (FCA) has released a guideline on how financial firms can spot these bad actors, Cointelegraph reported.

Jonathan Davidson and Megan Butler, FCA's executive directors of supervision, advised banks to treat clients dealing in crypto assets with a tailored approach. They reasoned that the risk with the crypto market isn’t consistent and differs depending on a host of factors.

Add to that the fact that regulations have yet to be put in place to govern this industry and the problem becomes even more complicated. As such, the FCA stressed that protective measures should be prioritized by banks to spot and avoid clients who may be dealing in crypto-related criminal activities.

Among the practices that financial firms should implement is the dissemination of information to their staff for early detections. The FCA also encourages banks to engage clients who are operating within the crypto sphere to have a better understanding of how the industry functions. However, the FCA also advises banks to tread carefully and to arm themselves with information and up-to-date news regarding the market, particularly with regards to various modus operandi.

There were two things that are highlighted in the guidelines which may indicate a client as potentially high-risk. The first is if a client is using a state-issued digital currency and if they are in possession of a large number of initial coin offering (ICO) tokens.

The rationale behind the first reason is that state-sponsored crypto cash is “designed to evade international financial sanctions.” As for the second reason, ICOs had a 59 percent failure rate last year, even if some of these startups managed to accumulate a $233 million funding collectively.

Last month, the U.S. Securities and Exchange Commissions secured a court order against a startup that managed to dupe investors into buying into its ICO. The president of the company raised $21 million from domestic and foreign investors by using social media to create a false image of the firm, while simultaneously blinding them with a promise of high return on investment.