UK Faces Significant Challenges in Combatting Crypto Laundering Ahead of FATF Evaluation

UK's Regulatory Framework for Cryptocurrency

As the UK prepares for its upcoming evaluation by the Financial Action Task Force (FATF) in 2027, experts are warning that the country's regulatory framework for cryptocurrency is still in development. A new report released by a taskforce established by the Royal United Services Institute highlights critical issues that may affect how the UK performs when global assessors arrive next year to review its efforts against cryptocurrency-related money laundering.

FATF's Role and Risks Associated with Cryptocurrency

The FATF, an international body headquartered in Paris, is responsible for setting global standards to combat money laundering and terrorist financing. The UK's evaluation will be the first to specifically include assessments involving cryptocurrencies, and according to the comprehensive analysis, the taskforce believes that crypto poses a significant risk, which they label as a "material risk."

Recent figures from the City of London Police indicate that around two-thirds of investment fraud cases in the UK involve cryptocurrency. The UK's National Risk Assessment conducted in 2025 has elevated the crypto money laundering threat from medium to high risk since its previous assessment in 2020.

Regulatory Developments and Challenges

In response to these challenges, the UK began incorporating crypto firms under its anti-money laundering regulations back in 2020. Legislation identified a formal regulatory framework for cryptocurrencies was adopted in February. The Financial Conduct Authority (FCA) outlined the specific activities it would oversee in April and completed its regulatory framework by June, yet these measures will not fully come into effect until October 25, 2027.

The taskforce meeting in September cast doubt on the UK's preparedness to demonstrate effective implementation of these regulations by the time FATF officials visit in June. Comparisons were drawn, showcasing that the UK has adopted a more cautious approach than other jurisdictions like Hong Kong, the European Union, and Singapore. The assessors are expected to scrutinize the effectiveness of the UK's strategies, with a specific focus on the unregulated activities associated with over-the-counter brokers that may facilitate substantial amounts of illicit transactions.

Concerns and Law Enforcement Challenges

The taskforce highlighted a significant seizure by the Metropolitan Police of £5.5 billion (approximately $7.3 billion) related to a notorious money laundering case, suggesting that while there have been some successes within the UK criminal justice system, such achievements are not consistent enough. Moreover, the FATF will require evidence that outcomes align with the identified risks, rather than relying on isolated high-profile incidents.

Concerns were also raised about the UK’s regulatory approach, which mirrors the EU’s Markets in Crypto-Assets Regulation, potentially excluding high-risk cryptos outside FCA oversight. This positions law enforcement in the difficult position of tracking assets that fall under international scrutiny, such as the stablecoin Tether (USDT), which a 2025 Treasury report indicated is frequently used by Russian laundering networks. Taskforce members expressed skepticism regarding whether law enforcement has the necessary resources and authority to keep pace with these developments.

International Collaboration and Future Outlook

On a positive note, the taskforce commended the UK’s collaboration with international partners, such as Operation Destabilise, which targets networks that facilitate money laundering through cryptocurrencies. However, concerns remain about the adequacy of resources allocated to the UK Financial Intelligence Unit and the broader economic crime enforcement framework.

In a broader context, the FATF has been emphasizing the need for all countries to strengthen their enforcement of cryptocurrency regulations. A survey conducted in July revealed that nearly 93% of jurisdictions failed to implement FATF standards applicable to decentralized finance platforms. As the landscape continues to evolve, the RUSI taskforce will reconvene shortly to discuss ongoing trends and strategies based on recent evaluations.