Five things to consider when submitting your 5MLD application

Source: Compliancy Services 2020-05-18

From the 10th January 2020, the FCA became the Anti-Money Laundering and Counter-Terrorist Financing (AML/CTF) supervisor of UK cryptoasset businesses under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, as amended (MLRs), which implement the 5th Money Laundering Directive (5MLD) into UK law. From that date, firms have been able to submit applications for registration, ahead of a cut-off date for registration of 10th January 2021.

With the gateway now open for registrations, we highlight five things you need to know if thinking about submitting an application:

Scope

The types of firms caught within scope is very broad, and is set out in regulation 14A of the MLRs:

The exchange of fiat currency for cryptoassets

Providing custodian wallets for storing cryptoassets on behalf of customers

The exchange of one cryptoassets for another

Operating cryptoasset ATMs

Facilitating the peer-to-peer exchange of cryptoassets

Participation in Initial Coin Offerings (ICO)

Effort

In stark contrast to the FCA’s registration process under both 3MLD and 4MLD, the information requirements under 5MLD are extensive and will require you to provide full details in relation to:

Programme of operations

Business plan

Structural organisation

Systems & controls

Individuals, beneficial owners and close links

Whilst these headings may seem straightforward, the FCA will expect clear articulation of any information provided, accompanied by supporting evidence wherever possible.

Key personnel

As with any other entity that will be supervised by the FCA, the regulator expects the firm to have proportionate but effective governance arrangements in place. Key to that is that the individuals involved, i.e. the board of directors, have sufficient knowledge and experience of crypto/AML and are fit and proper individuals.

Crucially, should any individual applicant fail to pass the fit and proper test, then the firm itself cannot be registered and will need to consider whether it is able/willing to remove that individual from the business.

Perhaps the role that will attract most attention is that of the ‘nominated officer’, or MLRO. Here in particular, the FCA expects the individual performing that role to demonstrate they have the knowledge, experience and training, as well as sufficient authority within the business to enable them to undertake that role. Typically, it is expected that the firm appoints a member of the board of directors or senior management to be the nominated officer.

Increased FCA scrutiny

As previously explained, this registration process is unlike any other previously under the MLRs. Indeed, the information requirements are not dissimilar to that required from firms seeking authorisation as an electronic money institution (AEMI).

As with AEMIs, the FCA will conduct a robust assessment of the application and expect the firm to clearly demonstrate how it is meeting its obligations under the MLRs (if an existing business prior to 10th January 2020). As with other application types, firms should expect to receive a number of follow-up questions and even visits (video calls if still under Covid-19 restrictions) from the FCA.

Perhaps then it’s no surprise that the application fee (for businesses with annual UK cryptoasset income greater than £250,000) is £10,000, as compared with £5,000 for an AEMI.

Carrot vs stick

The timing of your application is particularly important. In an effort to encourage firms to submit applications early – in the hope of better managing its workflow during the period – the FCA has committed to prioritising any applications received (from existing businesses) by 30th June 2020. Whilst not guaranteeing a positive outcome, it is as close as the regulator will come to saying that any application received by that date will be determined by the 10th January 2021.

If that is the case, then firms failing to submit by the 30th June 2020 run the risk of not having their application determined by 10th January 2021. If that is the case, then any existing business not registered must cease trading. Failure to do so would be a criminal offence.

So, which is more appealing; the carrot or the stick?

Five things to consider when submitting your 5MLD application

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