On 16 September 2021, UK Finance published ‘Navigating the path to respectability: Making sense of the financial crime risk posed by cryptoassets and how to manage it appropriately’.
The paper is intended to help readers understand cryptoasset business models from crypto ATMs to exchanges, P2P sites and ICO issuance and how they can be exploited by bad actors and what risks they pose to banks and the traditional financial sector. The paper addresses the full spectrum of financial crime risks and identifies techniques and best practice for banks and other financial institutions to assist managing cryptoasset risks, be it indirect risk from customer transactions or direct risk from banking cryptoasset clients. It will also assess how financial institutions can adapt and adjust their risk appetite to the sector where total volume and value of transactions exceed illicit activity by many orders of magnitude.
The paper also seeks to answer the following questions:
- What do we know about the true calibration between threat, vulnerability and risk posed by cryptoasset providers to wider financial institutions?
- What are the principal ML/TF compliance challenges posed by cryptoasset providers and how can the industry effectively mitigate these relative to risk exposure (with reference to known typologies)?
- Why should both sectors work together for the benefit of the UK?
- How can both sectors move towards a mutually agreeable balance of risk and acceptable controls? And what role does the regulator have to play?
- What action is required to encourage wider and safer adoption of cryptoassets with both retail and institutional investors in light of the known financial crime risks?