The City of London Law Society (CLLS) has published its response to HM Treasury’s (HMT’s) consultation on transposing the EU Fifth Money Laundering Directive (5MLD) into the UK law. The response has been prepared by the CLLS Regulatory Law Committee (Committee) and it has focused on the following areas: cryptoassets and registration of express trusts.


The Committee expressed concern about the government’s proposed broad definition of cryptoassets which covers additional types of activity not currently contemplated by the 5MLD.

In particular,:

  • the definition of a “cryptoasset” proposed by HMT refers purely to the form of the relevant asset (being cryptographically secured, digital, uses DLT technology and can be transferred to stored electronically) rather than its nature;
  • the Committee warns that by using a definition that focuses on the form rather than the nature of the relevant asset, the government risks bringing within scope of anti-money laundering (AML) regulation a broad range of assets that have not traditionally been within scope. This is in contrast to the 5MLD definition of “virtual currencies” which covers both the form and nature of the relevant asset;
  • by focusing on the form, rather than the substance of the relevant asset, the Committee believes that such approach is contrary to the general approach under the EU money laundering Directives which require a “business relationship” to be established before requiring customer due diligence and related monitoring to be performed; and
  • whilst the Committee recognises and agrees with the government’s concern that services in relation to a broader range of cryptoassets than the virtual currencies specified in 5MLD may be used for the purposes of financial crime, it suggests that it would be more appropriate to implement this aspect of the regime in an incremental manner.

On pages 2 and 3 of its response, the Committee considers in more detail the following services that the government is considering bringing within scope of AML regulation: crypto-to-crypto exchange services, issuances of new cryptoassets and publication of open source software.

Registration of express trusts

The Committee notes that HMT has provided guidance in respect of 4MLD confirming that the trust registration process was not intended to apply to statutory, resulting or constructive trusts. The Committee states that it would be helpful if, in respect of the UK’s implementation of 5MLD, HMT could confirm this limitation of scope of the registration requirement. In particular, the Committee states that it would be helpful to exclude trusts formed to comply with statutory or regulatory requirements.

The Committee also notes that it is common in the asset management industry for general partners to hold fund assets on trust. To the extent that the express trust relating to the general partner’s holding of fund assets is subject to 5MLD registration requirements, the Committee feels that it would be helpful if HMT could confirm the extent of the resulting data collection and sharing obligation, particularly in respect of investors in the relevant fund.


HMT’s current proposal in respect of cryptoassets is in line with the view taken by the UK Cryptoassets Taskforce in its most recent report (see here). It also accords with the Financial Action Task Force’s updated recommendations on the definition of “virtual asset service providers”. These recommend that jurisdictions should capture within their AML regulatory regimes one or more of the following activities or operations:

  • exchange between virtual assets and fiat currencies;
  • exchange between one or more forms of virtual assets;
  • transfer of virtual assets;
  • safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets; and
  • participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.

Nevertheless, clarification on the exact scope of cryptoassets to be captured by the UK AML regime will be very much welcome.

In respect of the registration requirements for express trusts, we are hopeful that the HMT, as indicated in its 5MLD consultation, will produce guidance to help firms determine which types of UK trusts will fall within the definition of an express trusts, and therefore be subject to registration requirements.