In a statement issued on 11th March 2022, the Financial Conduct Authority (FCA) directed all firms running crypto ATMs to shut down operations or face enforcement action.
According to the FCA, none of the crypto firms registered with them have a license to operate crypto ATMs in the country, meaning all crypto ATMs are illegally operating, and the public should not use them.
The UK has about 80 crypto ATMs spread across the country, with most installed in supermarkets and corner shops.
The FCA, an authority responsible for regulating the financial services industry in the country, mentioned Gidiplus, a crypto ATM firm, that had been denied a license to operate its machines in the country due to failure to comply with the UK Money Laundering Regulations (MLR).
The firm filed a case with the Upper Tribunal seeking to continue business operations pending its appeal with the Upper Tribunal concerning the denial of a license by the FCA. The court dismissed the case citing “lack of evidence as to how Gidiplus would undertake its business in a broadly compliant fashion”.
Why Did the FCA Order the Shutdown of Crypto ATMs?
The FCA is charged with enforcing the UK’s Money Laundering Regulations (MLR) outlined in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
The regulations seek to prevent money laundering activities, financing of terrorist activities, and transfer of funds for malicious purposes through the use of financial systems such as banking. In 2020, the regulations were amended to include cryptocurrencies.
The UK is not the only one to introduce regulations, as many countries have moved to regulate the space in light of the rise in popularity of cryptocurrencies over the last few years.
Crypto ATMs are similar to traditional bank ATMs, the difference is that customers can use them to buy or sell crypto through cash, debit, or credit cards. Some ATMs support only Bitcoin, while others support a variety of digital currencies like Ethereum, Litecoin, etc.
While crypto ATMs employ measures related to anti-money laundering and counter-terrorist financing, these are not considered adequate by the FCA. For most ATMs, identity checks such as Know Your Customer verification are usually required only when transacting huge amounts above a certain threshold.
In the Gidiplus case, the FCA argued that malicious persons could exploit the firm’s weak verifications on customers depositing less than £250 to move illicit funds by using “mules’ to make numerous small transactions to avoid the watchful eyes of the authorities.
What’s Next for Crypto ATM Operators?
While the government has ordered crypto ATM operators to shut down operations, it remains to be seen whether all operators will comply with the directive. It will also be interesting to see how the FCA will go about enforcing the directive in case operators decide to move their operations underground.
With crypto ATMs mostly located in supermarkets and small corner shops, locating and confiscating them won’t be an easy task as operators could move them to secluded locations. In addition, apprehending the owners of such machines would be a daunting task as they usually operate automatically with no need for constant monitoring.
However, continuing ATM operations secretly would be quite challenging as users may deem it too inconvenient to hunt down the secret machine locations, and risk getting in trouble with the law.
For operators who decide to shut down, most would likely relocate their operations or sell their machines to buyers in countries with lax regulations. For instance, in the case of Gidiplus, the Upper Tribunal ruled against the firm which has since sold its ATMs to an Eastern European buyer.
For consumers in the UK, the trading of crypto is far from over as there are many digital alternatives. These include exchanges, peer-to-peer sites, apps, etc. Even though these may be more convenient than ATMs in terms of accessibility, they don’t offer significant anonymity, which drew many to rely on ATMs.
ATMs that allowed the selling and buying of crypto through cash attracted those who did not want to leave a digital footprint when transacting.
For those looking for anonymity when transacting crypto, it’s going to be increasingly difficult to fly under the radar as more jurisdictions introduce regulations to strengthen identity verification and reporting of transactions.
What’s Next for Crypto?
The UK has been closing in on the crypto space by putting in place stiff regulations to regulate crypto-related activities in a bid to protect consumers.
In its statement, the FCA concluded by stating, “we regularly warn consumers that crypto assets are unregulated and high-risk which means people are very unlikely to have any protection if things go wrong, so people should be prepared to lose all their money if they choose to invest in them”.
In line with its tightening of regulations, in 2020, the FCA published a list of unregistered crypto-asset businesses, prompting many of them to close operations. A recent update from the regulator confirmed that 110 firms on the list had ceased operations.
With the current stance on crypto-related operations, many crypto firms have withdrawn their applications to register with the FCA, while others have had theirs denied for failure to comply with the money laundering regulations. As of March 7th, only 27 firms are registered.
The crackdown on crypto through regulations has continued in other parts of the world with Singapore shutting down crypto ATMs, as part of a move to clampdown on impulse trading caused by crypto advertising. Others such as Spain have issued guidelines requiring crypto promoters to submit ad campaigns for regulatory approval 10 days prior to launching them.
However, even though regulations may seem a bit harsh to some crypto investors, most countries are not opposed to the use of cryptocurrencies, with many such as the US and Canada already considering them properties or commodities, hence taxable. It appears many countries are seeking to protect consumers from the many scams still prevalent in the space through regulations, which in the long run may stabilize the crypto space. However, other countries like China have outright banned crypto with plans to launch their own government-controlled digital currency.
Written by Edmond K.