Cryptocurrency regulation and due diligence

Cryptocurrency regulation and due diligence

- Intelligence


Frederick Shepherd, Head of Intelligence Operations

With the growing demand for cryptocurrency assets, particularly amongst retail investors, a range of new companies have been established to cater for those who want to buy and sell digital currencies without having to wrap their heads around concepts like blockchain, ledgers or mining.

As with the entire cryptocurrency market, these cryptoasset firms – which typically offer simplified digital currency exchanges – have been criticised for being susceptible to a range of security and transparency issues requiring regulatory oversight.

UK watchdog the Financial Conduct Authority (FCA) recently warned that a “significantly high” number of cryptoasset firms are failing to meet anti-money laundering regulations.

The charge came as the FCA announced that it would extend its Temporary Registrations Regime (TRR) for cryptoasset businesses until 31 March 2022, meaning companies that applied to be licensed by the authority before 16 December 2020 can continue to trade while their applications are processed.

In a statement, the FCA said that it was conducting a “robust assessment” into cryptoasset businesses and emphasised that it will only register companies that can demonstrate processes to detect and prevent money laundering and terrorist financing in line with UK law.

Only five cryptoasset firms are currently registered and assessed as being fully compliant. There are almost 90 applicants on the TRR list yet to be registered, with the FCA stating that an “unprecedented” number of businesses have also withdrawn submissions.

What UK regulations apply to cryptoasset firms?

Critics of cryptocurrencies have consistently highlighted that currencies are vulnerable to exploitation by criminals, due to the relative anonymity of those transacting – which, for many proponents of digital currencies like Bitcoin, Ethereum and Litecoin, is one of their benefits. 

In the UK, cryptoasset firms are amongst those that must conform to the amended Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017). This legislation obligates private sector companies working in areas of higher money laundering risk to establish measures to identify their clients and scrutinise how they use their services.

Doing your due diligence

A key element of complying with MLR 2017 is establishing due diligence procedures. This would ensure that a firm can demonstrate evidence of who it is working with and identify related risks.

The level of due diligence required will depend on several factors, but verification of a client’s identity is essential, as is securing primary biographical details.

More enhanced due diligence might be required in situations where transactions or business relationships involve:

  • ‘High-risk third countries’ (i.e. a country which is assessed as particularly susceptible to illegal activities);
  • A Politically Exposed Person (PEP), a prominent individual more at risk from bribery or corruption due to their position and influence, or their relatives and associates;
  • Any other scenario where money laundering or terrorist financing is considered to be more likely.

Support from PGI

PGI has extensive experience supporting clients in conducting due diligence and corporate investigations to support their in-house anti-money laundering (AML) and know your client (KYC) procedures.

The due diligence principles applicable to the huge range of industries we have worked with are as relevant to the crypto sector as any other. Our analysts can screen individuals and entities to your requirements, scaling from a high-level overview to in-depth investigative reporting to ensure your compliance with financial regulations.

Assisting cryptoasset firms as they become a more established part of the financial services sector is an exciting challenge that PGI is well equipped to support on.

If you would like to discuss how our team can support your due diligence requirements, please contact us:

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If you have any questions about our services or would like to learn more about our consultants here at PGI, please get in touch with us and speak with one of the team, call us on +44 20 4566 6600 or email us at

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