Proposed Amendments To MLRs ' New Change In Control Regime For Cryptoasset Businesses

• Published date: 24 June 2022
• Subject Matter: Corporate/Commercial Law, Technology, M&A/Private Equity, Corporate and Company Law, Fin Tech
• Law Firm: Herbert Smith Freehills
• Author: Marina Reason, Susannah Cogman, Elizabeth Head and Patricia Horton

At the moment, the FCA's only powers over crypto businesses which do not carry on investment, payment services, e-money or other UK regulated business come from its role as their anti-money laundering and counter-terrorist financing supervisor. This will change in due course in respect of stablecoin businesses (with HMT consulting on bringing these into scope) and in respect of financial promotions of certain cryptoassets (both HMT and FCA are consulting on this). However, there is a more imminent change which will extend the FCA's currently fairly limited powers. This will be brought about through a statutory instrument (SI), a draft of which was laid before Parliament on 15 June, amending the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).

For cryptoasset firms, the key changes to MLRs to be aware of are:

1. the introduction of a new change in control regime for the sector which will require acquirers of cryptoasset businesses (or their parents) to seek prior approval from the FCA before the acquisition can take place; and
   
   
2. the "Travel Rule" which will expand the application of FATF Recommendation 16, regarding information sharing requirements for wire transfers, to cryptoassets. (In the EU, the European Commission's proposal to implement the Travel Rule by amending the EU Funds Transfer Regulation is currently going through the EU legislative process.)

The changes to the change in control regime will come into effect 21 days after the SI is passed, whilst the introduction of the Travel Rule is proposed to come into effect on 1 September 2023, with cryptoasset businesses expected in the interim to implement solutions to enable compliance.

This post focuses on the proposed change in control regime. Our earlier post on navigating the UK MLR registration regime for crypto firms is available here.

Change in control regime for registered cryptoasset businesses

The FCA has been frustrated for some time with not having the power to object to the acquisition of crypto firms under the MLRs, as shown in its public statements (for example, here). Its main concern is that firms can access the UK cryptoasset market and bypass the MLR registration gateway by acquiring cryptoasset firms which are already registered. Although there are "fit and proper" requirements under the MLRs which must be met at all times by crypto firms, key individuals and beneficial owners, and the FCA already has powers to cancel...