FCA eyes extra checks on crypto transfers from own wallets

Britain's Financial Conduct Authority (FCA) wants crypto firms to treat transfers involving personal, or "unhosted", wallets with extra care, according to draft guidance in consultation CP26/38, CryptoSlate reports. The proposal is guidance, not a new rule, but it signals what the regulator expects from exchanges and other firms it supervises.

What the FCA proposes

The consultation, opened on 23 October, suggests changes to the FCA's Financial Crime Guide and runs until 24 December 2026. The crypto-relevant parts:

• Unhosted wallets (draft FCG 3.2.8): applying enhanced due diligence, meaning more intensive checks, to transactions involving self-custody wallets is listed as an example of good practice. In practice that concerns, for instance, how a UK exchange checks coins arriving from a customer's own wallet.
• Explainable risk scores (draft FCG 3.2.5): relying on third-party technology without being able to explain or evidence how it reaches its findings or scores is called poor practice. Firms stay responsible for compliance even when a supplier does the screening.
• Tracing depth: the draft also criticises rigid rules on how many transaction "hops" a firm examines when those rules ignore risk. The problem, the FCA suggests, is a limit that disregards risk, not the use of a number as such.

How binding is it?

Not very, on paper. The FCA says the Guide contains no rules and imposes no new requirements, and departing from it would not by itself be a breach. But the regulator expects firms to read and consider it when building their controls, and it describes the changes as clarifying existing expectations. It does not expect a material increase in compliance work or costs for consumers.

What it means for users

UK crypto firms have already had to collect and share sender and recipient details for transfers since 1 September 2023 under the UK version of the crypto Travel Rule. If the guidance is adopted, customers moving coins between an exchange and a self-custody wallet may face more questions about who owns the wallet and where the funds came from. The FCA will publish feedback and a final text in a policy statement but has not given a date. It is the regulator's second crypto consultation this month, after its DeFi guidance proposals.