Greg Kilminster
Head of Product - Content
Crypto ATM operator pleads guilty
Olumide Osunkoya has become the first individual in the UK to plead guilty to offences related to the illegal operation of a crypto ATM network. At a hearing at Westminster Magistrates' Court, Osunkoya admitted to five charges, including operating unregistered crypto ATMs, using false documents, and possessing criminal property. This conviction marks a significant milestone for the UK Financial Conduct Authority (FCA) in its enforcement of cryptoasset regulations.
Osunkoya’s operation, which spanned multiple UK convenience stores, ran without proper registration from the FCA. His network of at least 11 crypto ATMs processed more than £2.6 million in transactions between December 2021 and September 2023. The FCA had previously rejected his registration application in 2021 under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).
Despite this rejection, Osunkoya continued to grow his network, operating without conducting any customer due diligence or source of funds checks. Evidence presented to the court suggested that the machines were being used by individuals likely involved in money laundering or tax evasion, adding to concerns over the use of cryptoassets for illicit purposes.
Osunkoya’s offences include two counts of operating unregistered crypto ATMs under the MLRs, two counts of forgery related to false documents, and possession of £19,540 in cash linked to his illegal activities. In an attempt to deceive the FCA, Osunkoya even created a false alias and falsely claimed to have sold his ATM network to a fictitious individual.
This is the first UK conviction for running a crypto ATM network without registration, setting a legal precedent under the MLRs. Cryptoasset businesses in the UK have been subject to anti-money laundering and counter-terrorist financing (AML/CTF) regulations since January 2020. However, no crypto ATMs are currently legally registered with the FCA.
Osunkoya faces significant penalties, including up to 10 years in prison for the forgery charges and up to 14 years for possession of criminal property. The unregistered operation of crypto ATMs could also lead to a maximum sentence of two years in prison or a fine.
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UK regulators publish policy statement launching digital sandbox
The Bank of England (BoE) and the Financial Conduct Authority (FCA) have officially launched the Digital Securities Sandbox (DSS), following a consultation process that concluded in May 2024. This initiative represents a significant step towards integrating emerging technologies, such as distributed ledger technology (DLT), into financial market infrastructures (FMIs). Through the DSS, firms will be able to test and trial these innovations under a modified regulatory framework, with the potential for permanent regulatory changes based on the sandbox’s outcomes.
Some context
The DSS is the first sandbox created under the FMI sandbox powers granted by the Financial Services and Markets Act (FSMA) 2023. The aim is to provide a controlled environment where firms can explore new business models, such as issuing, trading, and settling securities using technologies like DLT. The sandbox is designed to support innovation while maintaining financial stability and ensuring market integrity.
The sandbox will allow firms to simulate real-world operations, including functions traditionally associated with central securities depositories (CSDs) combined with trading venue activities. However, limits will be placed on the value of securities issued into the DSS, and firms operating within it will not be held to the same standards as traditional CSDs. This creates a higher level of risk for participants, which the BoE will monitor closely to prevent systemic disruptions.
Key takeaways
Regulatory feedback and changes: The DSS policy statement, published alongside application forms and guidance documents, outlines the regulators’ approach after reviewing industry feedback. The consultation attracted 33 responses, with most participants expressing broad support for the initiative. Respondents welcomed the regulators’ balanced approach to promoting innovation while safeguarding financial stability and market integrity.
Scope and eligibility: The DSS will accommodate a wide range of financial institutions, including those involved in fund tokenisation and those dealing in non-GBP denominated assets and settlements. Entry into the sandbox is gated, with specific requirements that firms must meet at each stage of the process. The first gate involves applying for admission to the sandbox, while further gates focus on supervisory approval and full operation.
Operational framework: The sandbox will operate with strict limitations to mitigate financial stability risks. Firms participating in the DSS will be required to undergo periodic reviews, especially before advancing through different gates. Settlement processes, including the payment leg of transactions, will be closely monitored to ensure they align with regulatory expectations.
Supervision and risk management: The BoE and FCA will apply tailored supervision to firms within the DSS. Capital requirements, fees, and regular reporting obligations will form part of the supervisory framework. The regulators aim to contain risks such as operational disruptions and cyber threats, while maintaining transparency in communications with the industry.
Temporary nature, but long-term implications: Although the DSS is a temporary initiative, it is not intended as a ‘bridge to nowhere’. Should the sandbox prove successful, it could lead to permanent legislative changes that would allow for the ongoing use of new technologies in FMIs. The FSMA 2023 gives the government the ability to introduce secondary legislation based on the outcomes of the DSS.
Next steps
With the DSS now open to applications, firms interested in participating must familiarise themselves with the guidance and rules published alongside the policy statement. The BoE and FCA are actively encouraging constructive engagement from a wide range of stakeholders as the sandbox evolves.
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ASIC cracks down on SMSF auditors in first half of 2024
The Australian Securities and Investments Commission (ASIC) has disqualified or otherwise sanctioned 28 self-managed superannuation fund (SMSF) auditors in the first half of 2024, citing breaches of auditing standards, independence concerns, and unsuitability.
This comes on top of action taken against 15 auditors earlier this year who were found to be conducting ‘in-house audits’, a practice that raises independence concerns. The move highlights ASIC's focus on ensuring the integrity and compliance of the (SMSF sector, which manages more than $990 billion in assets across more than 625,000 funds.
Range of sanctions imposed
ASIC's actions included:
- Disqualification of seven SMSF auditors.
- Suspension of one auditor (later varied to a three-year and three-month suspension).
- Imposition of additional conditions on the registration of four auditors.
- Cancellation of registration for one auditor.
Focus on upholding standards
The specific details of each case are not publicly available, but ASIC emphasised its commitment to upholding auditing and assurance standards, along with requirements for continuing professional development and ensuring the ‘fit and proper’ status of registered auditors.
Appeal process and next steps
Some of the disqualified auditors have appealed ASIC's decisions to the Administrative Appeals Tribunal (AAT). Notably, one initial disqualification was revoked upon reconsideration and replaced with a suspension and additional conditions.
ASIC will continue to monitor the SMSF auditor population and take action against those who fail to meet the required standards. SMSF trustees and members are encouraged to check ASIC's public register to ensure their chosen auditor is registered and in good standing.
Background on SMSF auditor regulation
ASIC and the Australian Taxation Office (ATO) co-regulate SMSF auditors. The ATO monitors auditor conduct and refers cases to ASIC for potential enforcement action. ASIC has the power to disqualify, suspend, cancel registration, or impose additional conditions on auditors deemed non-compliant.
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HKMA publishes feedback on information sharing consultation
The Hong Kong Monetary Authority (HKMA) has summarised the feedback from a public consultation on its proposal to facilitate information sharing among Authorised Institutions (AIs) to aid in the prevention and detection of crime. This initiative is intended to enhance the banking system's defences against fraud, money laundering, and terrorist financing (ML/TF). The consultation, launched in January 2024, received 18 responses from various stakeholders, including financial institutions, law enforcement agencies, and the public.
The majority of respondents supported the proposals, with some offering suggestions for improvement, particularly around implementation. A key element of the feedback was the need for legal protection for AIs sharing information solely for the purpose of crime prevention, a view supported by all who responded to this question in the consultation.
Several respondents also suggested expanding the scope of the information-sharing framework to include proliferation financing (PF) and other financial crimes that constitute predicate offences for money laundering. The HKMA agreed with these recommendations, noting that the regime would cover all crimes generating criminal proceeds.
On the question of whether information sharing should be voluntary or mandatory, most respondents favoured a voluntary framework. Concerns were raised that a mandatory system might overwhelm the system with low-value suspicious transaction reports (STRs). However, the HKMA will consider issuing guidance to encourage AIs to participate voluntarily.
Other issues raised included:
- the scope of information to be shared,
- the potential relationship with the STR regime, and
- the need for safeguards to protect personal data.
The HKMA has committed to including flexibility in the types of information shared and has indicated that information sharing will complement the existing STR framework.
The HKMA has also engaged with the Office of the Privacy Commissioner for Personal Data (PCPD) to ensure that the proposed information-sharing regime aligns with the Personal Data (Privacy) Ordinance, with a focus on data security and the protection of personal privacy.
The HKMA will now work on drafting legislative amendments to the Banking Ordinance, which are expected to be introduced to the Legislative Council in 2025. Meanwhile, it continues to engage with stakeholders to refine the implementation of the proposals.
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Hong Kong's deposit protection scheme gets a boost
The first phase of enhancements to the Deposit Protection Scheme (DPS) in Hong Kong has come into effect today, 1 October 2024.
Key changes include:
- Increased protection limit: The deposit protection limit per depositor per bank has risen from HK$500,000 to HK$800,000.
- Revised levy system: The levy system has been refined to ensure the DPS Fund can reach its target size within a reasonable timeframe.
- Streamlined negative disclosure: The requirement for private banking customers to disclose non-protected deposit transactions has been streamlined.
Chairman of the Hong Kong Deposit Protection Board (HDPB), Connie Lau Yin-hing, expressed her satisfaction with the smooth implementation of these measures. She highlighted the increased protection for bank depositors and emphasised the ongoing promotional efforts to raise public awareness of the enhanced DPS.
Second phase of enhancements
The second phase of enhancements is scheduled to take effect on 1 January 2025. This phase will include:
- Enhanced coverage: Affected depositors in bank mergers or acquisitions will receive enhanced protection.
- Membership sign requirement: Scheme members will be required to display the DPS membership sign on their electronic banking platforms.
- The implementation of these enhancement measures demonstrates Hong Kong's commitment to strengthening its financial system and protecting depositors' interests.
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