Upper Tribunal finds failings with crypto trader’s AML compliance

The Upper Tribunal (Tax and Chancery Chamber) has published its decision in Vladimir Consulting Ltd (VCL) v Financial Conduct Authority, in which it has analysed whether VCL’s approach to business was compliant with the MLRs 2017.

Earlier this year, FCA refused to register VCL as a cryptoasset exchange provider under regulation 57 MLRs. VCL referred to the tribunal to appeal FCA’s decision and it also applied for the decision notice to be suspended pending determination of the appeal by the tribunal.

The tribunal has now refused VCL’s application – it was not satisfied that VCL would carry on its business in a broadly compliant manner during the period up to the appeal hearing if the tribunal were to grant the suspension application. The tribunal identified various issues with VCL’s approach including:

  • VCL’s interpretation of the concept of a “business relationship” under the MLRs. The tribunal rejected VCL’s argument that regulation 4(1)(b) MLRs requires the relevant person to assess whether there is an element of duration to the relationship only once at the time of first contact with a customer;
  • this misunderstanding of “business relationship” meant that VCL had not complied with due diligence requirements under the MLRs and consequently that VCL’s owner (and sole employee) was not fit and proper to carry on the business; and
  • VCL had not fully understood its role as a “gatekeeper” of the AML regime – it had placed reliance on due diligence checks carried out by its customers’ banks and by bitcoin exchanges, even though it had no relevant contract with those financial institutions concerning formal reliance.

Lucy Hadrill