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Clifford Chance

Clifford Chance

Regulatory Investigations and Financial Crime Insights

HM Treasury considers gold-plating 5MLD requirements for cryptos

HM Treasury's consultation on the transposition of 5MLD highlights the potential gold-plating of 5MLD in relation to the requirements for cryptos. We look at the proposal and consider some of the potential impacts.

On 15 April 2019, HM Treasury published a consultation on the transposition of the Fifth Money Laundering Directive (5MLD) which is scheduled to be implemented by 10 January 2020. 5MLD requires Member States to implement a number of changes, as set out in our update last year.

As anticipated in the final report of the Cryptoasset Taskforce (comprised of HM Treasury, the FCA and the Bank of England) published in October 2018 (the Cryptoasset Taskforce report), the Government proposes to go beyond the requirements of 5MLD in relation to the requirements for cryptos in order to provide "one of the most comprehensive responses globally to the use of cryptoassets for illicit activity".

5MLD requirements

5MLD brings two types of crypto-related business within scope of the money laundering perimeter: "providers engaged in exchange services between cryptoassets and fiat currencies" (i.e. platforms used to exchange money for cryptocurrency) and "custodian wallet providers", defined as those providing "services to safeguard private cryptographic keys on behalf of its customers, to hold, store and transfer virtual currencies”. Providers of these services in the UK will be required to fulfil customer due diligence obligations, assess the money laundering and terrorist financing risks they face and to report any suspicious activity they detect. They will also be required to register with the relevant UK supervisor. The FCA is currently considering this role of registering authority for cryptoasset firms and HM Treasury is consulting on this proposal.

5MLD defines virtual currencies as "a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically".

Proposed gold-plating

The Cryptoasset Taskforce established a framework of three broad types of cryptoassets: exchange tokens, security tokens and utility tokens (as defined in the Cryptoasset Taskforce report). HM Treasury considers that all relevant activity involving these three types of cryptoassets should be caught by the UK implementing legislation but is seeking views on this approach and whether the definition of virtual currency in MLD5 may need to be amended in order to capture all three types of asset. HM Treasury is also asking whether there are other types of virtual currencies, cryptoassets or wallet services or service providers which would fall within the 5MLD definitions but which would not fall within these three types of cryptoassets.

HM Treasury is further consulting on extending the UK regulations to the following:

  • crypto-to-crypto exchange service providers;
  • peer-to-peer exchange service providers;
  • Cryptoasset Automated Teller Machines;
  • issuance of new cryptoassets, for example through Initial Coin Offerings; and
  • the publication of open-source software.

HM Treasury will also consult later this year on the regulatory perimeter in relation to security and utility tokens to further explore whether and how exchange tokens and related firms could be regulated beyond the UK implementing legislation.

Jurisdictional scope

The UK money laundering regulations apply to those acting in the course of business in the UK. There is no exhaustive definition of what this means. Where business is being conducted using distributed ledger technology it may be difficult to determine where the business is being carried out. HM Treasury acknowledges this risk in the consultation and seeks views on how to address it.


As set out in the HM Government transposition guidance dated February 2018, it is Government policy that you should not go beyond the minimum requirements of European Directives, unless there are exceptional circumstances, justified by a cost benefit analysis and consultation with stakeholders. However, cryptoassets seems to be one area where the Government is keen for gold-plating. This may be partly because updates to the Financial Action Task Force's (FATF) standards now oblige its members to regulate cryptoassets and cryptoasset service providers and these obligations go further than the 5MLD requirements.

Any gold-plating would likely lead to inconsistency across the EU, in turn resulting in greater complexity and cost for affected cryptoasset businesses. In practice firms are likely to consider applying the higher UK standards across the EU to minimise risk and complexity, especially if there are changes to the jurisdictional scope of the UK rules.

Depending on how HM Treasury proposes to address cross-border risks, there may be a collateral impact on the jurisdictional scope of the regulations relating to other activities already in scope. Firms should be mindful of this potential impact.

The closing date for responses to this consultation to be submitted is 10 June 2019.

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