The legislation to target crypto asset businesses and amend existing sanctions legislation came into effect.
The UK’s His Majesty’s Treasury (HMT) has updated its guidance for financial sanctions. The updated guidance document makes an explicit reference to crypto assets, crypto exchange providers, and custodian wallet providers:
- Cryptoassets are explicitly indicated as falling within the definition of funds and ‘economic resources, and consequently, asset freeze restrictions apply to them.
- Cryptocurrency exchange providers and custodian wallet providers are explicitly listed among relevant firms and, consequently, must follow specific sanctions reporting obligations.
While the updated guidance document explicitly outlines crypto sanctions-related obligations, the UK regulators have clarified that financial sanctions apply to crypto assets to the same extent as fiat assets.
In March 2022, following the introduction of Russia-related sanctions in response to the war in Ukraine, the UK regulators issued a joint statement explaining that “UK financial services firms, including the crypto asset sector, are expected to play their part in ensuring that sanctions are complied with” and highlighting that ‘information to report regarding financial sanctions’ must be sent to Office of Financial Sanctions Implementation (OFSI).
Barbara Halasek, Head of Regulatory Affairs at Coinfirm, is optimistic about this news.
“The extension of HMT sanctions guidance to crypto assets, crypto assets exchanges, and custodian wallet providers brings more clarity into the obligations that many market players have already been aware of and implementing in practice. Following the statement from the UK regulators in March, it was clear that the regulators’ expect the crypto market to comply with financial sanctions to the same extent as the traditional fiat financial institutions.”
Liz Truss on cryptocurrency
The new sanctions follow an unprecedented week in the UK.
Upon revelation of a series of scandals, Boris Johnson resigned as British prime minister; his former Foreign Secretary Liz Truss became Prime minister. The new leader appears to be crypto-friendly based on her tweets from 2018.
Since then, Truss has not made any specific recommendations or comments about cryptocurrencies or blockchain technology. As the new Chancellor of the Exchequer, Kwasi Kwarteng will play a key role in developing cryptocurrency regulations in the UK.
Parliament held a second reading of the Financial Services and Markets Bill last week, and the bill is now waiting for committee consideration in Westminster.
This bill is intended to help regulators regulate crypto used for payments, such as stablecoins.
U.S. sanctions compared
While the Russian sanctions are similar to those in the UK, EU, and the U.S., there are some differences, and navigating them has become very complex.
Halasek explains, “it does not come as a surprise and is consistent with OFAC actions and guidance in the US. In contrast to the Office of Foreign Assets Control (OFAC), HMT sanction lists have not published crypto-assets addresses related to ‘designated parties.’ However, this does not mean that screening the clients’ names of their connected parties (directors, beneficial owners, etc.) is all that can be done to ensure compliance with sanctions. The UK regulators have provided a list of steps that can be taken to reduce sanctions risks in their March statement. Crypto-asset businesses are encouraged to use customer profiles and behavior monitoring to assess sanctions’ risks. The mitigating steps list also mentions where blockchain analytics solutions are deployed, ensuring that compliance teams understand how these capabilities can be best used to identify transactions linked to higher risk wallet addresses.”
It is expected that compliance will play a significant role in crypto in the future, and firms must adapt to continue to operate in this growing field.
Halasek concludes, “at Coinfirm, we fully understand the value of compliance teams training; therefore, we will soon launch the Coinfirm Academy training program, where the module devoted to Sanctions Compliance will be the first one.”