UK Regulatory Body Conducting 50 Crypto-Related Investigations, Up 100% Since May

Colin Muller
  • UK's FCA conducting 50 investigations into unauthorized financial services
  • Increased rate of "whistlebowing" of employees of business-related companies

Following the yearlong collapse in cryptoasset prices, the UK’s Financial Conduct Authority (FCA) is now conducting twice as many crypto-related investigations than it was in May of this year, according to reporting done by the UK Telegraph paper.

The FCA are investigating 50 firms which it believes are operating illegally in a financial services capacity without the organization’s permission, up from 24 earlier in the year. Seven so-called whistleblowing reports have been filed to the FCA by employees of crypto-businesses this year.

According to a source speaking to the Telegraph, this is perhaps due to an uptick in complaints of fraud from disgruntled investors.

Regulatory Clarity Still Lacking

CryptoGlobe reported in October that the FCA had been preparing to refine their position on regulation of cryptoasset exchanges, in a preparation to possibly expand regulatory oversight beyond exchanges only dealing with cryptoasset derivative products, such as securities and futures.

A “Taskforce” had by mid-October been formed by the FCA to tackle these questions. It has since then published a report on the subject of cryptoassets and the UK government’s regulatory remit.

The report however, seems only to be preliminary. It concluded that the considerations should be extended into 2019, to decide “whether the regulatory perimeter requires extension in relation to cryptoassets that have comparable features to specified investments but that fall outside the perimeter,” e.g. non-derivative products.

There is, therefore, no definitive indication that the uptick in investigations is due to any change in policy. At this juncture, the UK government does not have a general regulatory framework for dealing with cryptoasset exchanges and tokens, but will “issue a consultation in early 2019” in order to develop one.

For now, they will simply continue to warn investors of the risks, and “monitor [crypto’s] potential implications for financial stability.”

Why It’s so Difficult to Launder Money on the Blockchain

Written by Andre Kalinowski, founder at blockchain monitoring platform PARSIQ


There is still a common misconception about cryptocurrencies amongst the public. They often regard it as a method for shady deals and illegitimate companies. This stems partially from the fact that one of the first real-world use cases of Bitcoin was its use for payments on the infamous dark web marketplace Silk Road, where anonymous users could buy almost any banned product, ranging from illegal drugs to weapons. Moreover, the authors of ransomware have also hidden behind Bitcoin’s anonymity in the past.

However, while the early days of Bitcoin may have been littered with unscrupulous transactions, modern advances in blockchain analysis mean that it is far more difficult to launder money on the blockchain than many realise. Most cryptocurrencies are far less anonymous than people expect, and transaction history is a lot more traceable than fiat currencies.

With this in mind, we will explore the reasons for why it’s so difficult to actually launder money on the blockchain and debunk the myth that crypto is a good place to carry out shady exchanges.

Less Anonymous Than You Think

In essence, most blockchains are transparent public ledgers. This means that every transaction made can be read by anyone and remains on the ledger forever, with records of the accounts and the inputs and outputs involved in each transaction, so transaction history can be followed back to gain significant knowledge over an individual’s financial affairs.

Another important factor to consider is that while cryptocurrencies were created to be pseudonymous, this anonymity is lost as soon as cryptocurrencies are moved out of the system. Even though crypto wallets comprise a series of letters and numbers that do not provide any information on the account holder, as soon as someone purchases something in crypto using that wallet as an account, or if they were to convert their crypto into fiat currencies, people can trace where the crypto came from and the previous transactions that were made with these specific digital assets.

For example, if you were to hack a crypto exchange, you’d have the perfect tool in cryptocurrencies for moving your newly acquired money around anonymously. However, you would not be able to use this money for anything because as soon as you spend that money, or try to exchange it into fiat, it would be immediately obvious that you were the person that hacked the exchange.

Can Dirty Coins Be Cleaned?

There are a number of ways that crypto criminals might try to “clean” stolen or “dirty” coins. Firstly, they might try manual methods, by mixing transactions of various people in a way that it is not clear anymore what the origin of each participant’s funds is. While this approach may confuse the casual observer trying to track transaction history, tracing is still possible. Moreover, the only way to cash out on these dirty coins is through off-chain services, such as LocalBitcoins, as exchanges are strict about their KYC procedures – but even this can be tough with many off-chain services removing their cash payment option, in order to negate untraceable withdrawals.

An alternative method of laundering illicitly obtained cryptocurrencies is by using a centralised mixer service, such as Bitcoin Laundry, which mixes your transactions with other users’ transactions using an algorithm, in order to obscure your transaction history.

However, while mixer services are more effective that manually mixing transactions yourself, it’s still possible for both human analysts and blockchain analytic software to trace coins passed through a hosted mixer service. In fact, a paper published in 2017 found that many mixer services are not a sophisticated as they appear to be, as their algorithms have a tendency to follow repeated patterns and re-use certain addresses.

A third option, which works best for account-based blockchains such as Ethereum, is to forego the need to trust a third party to mix your coins for you and rely on smart contracts instead. However, this decentralised option still has issues when it comes to privacy, as smart contracts are transparent and so mixer contracts can be easily identified through the deposit and withdrawal history of accounts. Earlier this year, Vitalik Buterin suggested a high-level design for a mixer contract that would avoid transfers being visible on-chain. However, this idea seems far from coming to fruition as it involves off-chain transactions and zero-knowledge proofs.

Tracing Transactions Got a Whole Lot Easier

While mixing coins and transactions can help to obscure transaction history and launder cryptocurrencies on the blockchain, technology continues to evolve to allow us to trace funds, no matter how they have been mixed. There are several blockchain analytics and monitoring tools available on the market which would allow you to track addresses and patterns, enabling you to identify whether certain coins have passed through some form of laundering process.

Thanks to new capabilities in blockchain monitoring and analytics, it’s easy for exchanges to track and trace where coins have come from, meaning they can blacklist certain addresses and reject business from dubious sources. So, despite what many may think, hackers and criminals have their work cut out for them, as laundering money on the blockchain is actually far more difficult than laundering fiat currency.