The UK Financial Conduct Authority opened a consultation on 23 October on changes to its Financial Crime Guide, and it told firms that a fixed cutoff on blockchain tracing is poor practice when they have not matched their checks to the risks they have found. Comments are due on 24 December. The FCA said the guide "does not contain rules nor impose any new requirements." It covers seven subjects: fraud, cryptoasset risks, sanctions, preventing proliferation financing, data security, systems and controls, and work against money laundering and terrorist financing. The final text will follow the comments.
No fixed hop count for crypto tracing
The draft deals with how far a firm follows a transfer by counting the steps in its path, the "hops." It sets no universal hop count and no threshold for when tracing should stop. A rigid limit is called out when a firm has not put measures in place that fit the risks it identified. Firms that buy outside monitoring tools should be able to explain the basis for the tools' findings or scores, calibrate those tools to the risks they have named, write the decisions down, and refresh customer due diligence when monitoring shows a material change in a customer's profile. The draft also says firms should consider enhanced due diligence, where it fits, if customers or transactions involve unhosted wallets, or privacy tools such as mixers, tumblers and privacy coins. Blockchain-analysis findings that point to criminal or sanctioned exposure are another reason to consider stronger checks.
Travel Rule, and a gateway that opens in 2027
The Travel Rule is restated, not rewritten. UK cryptoasset businesses have had to collect, verify and pass on originator and beneficiary information since 1 September 2023. If details are missing, firms should ask the counterparty, make a risk-based decision if the information still does not arrive, and report persistent failures to the FCA. Separately, the authorisation regime for certain cryptoasset activities is scheduled to begin on 25 October 2027. Some firms that enter it will stay under the Money Laundering Regulations as well. That is a year out. It is not a new licence round this week. Readers who want the last licensing step can go back to the first full cryptoasset licences issued after the June gateway. Tracing guidance also does not recover stolen coins. For what a loss report can and cannot do, see our note on the UK fraud strategy and the wider regulation desk.