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City regulator appeals for Bitcoin expertise as terrorists exploit cryptocurrencies

·3 min read
Bitcoin
Bitcoin

The City regulator is calling in Bitcoin experts to train its staff over fears that money launderers and terrorists using cryptocurrencies are steps ahead in the fight against financial crime.

The Financial Conduct Authority (FCA) is spending £500,000 on consultants to provide access to a platform that analyses blockchain data and to coach officials about how they can spot criminals transferring money via decentralised financial networks.

The FCA is ramping up its surveillance of crypto transactions as part of its efforts to tackle money laundering and terrorist financing due to fears that the crypto industry has become a hotbed for financial crime.

Concerns about the rise of cryptocurrency crime have been growing in the UK amid fears that the technology is lawless and extremely high risk. Police forces across Britain have seized hundreds of millions of pounds worth of cryptocurrencies this year linked to money laundering.

The financial regulator has issued a raft of warnings in recent months about the speculative nature of crypto assets, saying consumers should be prepared to lose all of their money.

However, the FCA has been slow to process the growing number of crypto-asset businesses operating in the UK.

The watchdog had been due to ban cryptocurrency firms not on its official register under anti-money laundering regulations from January, but having only processed four firms by that deadline, it ended up placing others on a temporary register until July.

In June, it again pushed the deadline for its so-called temporary registrations regime back until March 2022 with only five firms officially registered. It warned that more than 50 companies dealing in cryptocurrencies could be forced to shut after failing to comply with UK anti-money laundering rules.

Terrorists organisations are also increasingly using cryptocurrencies to discreetly funnel assets to fund their operations. In January, the FCA was granted powers to supervise anti-money laundering and counter terrorist financing under new regulations.

Extremists use digital coins to trade items such as weapons and drugs on the black market and even set up effective crowdfunding sites on the dark web where sympathisers can donate. For example, “Fund the Islamic struggle without leaving a race” is a dark webpage used to transfer bitcoins to jihadis.

Some extremists have even published books that teach supporters how to transfer Bitcoin from Western countries to jihadists.

Regulators have struggled to get a grip of crypto markets as digital currencies grow in popularity. In August, the City watchdog admitted that it was “not capable” of regulating the crypto exchange Binance after it refused to provide basic information about its operations.

Binance, which allows consumers to buy and sell hundreds of digital coins, “refused” to reveal information about its parent company, corporate structure or the legal body behind the Binance website, the FCA said.

Fears around cryptocurrencies being used for criminal activity has forced lenders to clamp down on certain payments.

Earlier this year, several British banks started cracking down on transfers to cryptocurrency exchanges by suspending payments to the sector due to fears about financial crime.

The FCA put the £500,000 contract out to tender last week. The successful firm will aid the regulator’s crypto surveillance efforts from March 2022 to February 2024, according to the terms of the contract.

The regulator declined to comment.