2025 Guide to UK AML Rules for Crypto Businesses

Crypto firms trying to set up shop in Britain face a maze of anti‑money‑laundering (AML) duties. From registration with the Financial Conduct Authority to the new Travel Rule thresholds, the rules shape every step of a business’s operation. This guide breaks down the current UK AML framework, highlights what will change with the upcoming Financial Services and Markets Act (FSMA) regime, and shows you how to stay compliant without burning all your cash.

What the UK AML framework actually is

UK AML regulations for crypto businesses are a set of legal obligations designed to stop money‑laundering and terrorist financing in the digital‑asset space. They sit on top of the broader Money Laundering Regulations 2017 (MLR 2017) and were extended to crypto‑asset firms on 10 January 2020, following the EU’s Fifth Anti‑Money‑Laundering Directive (AMLD5).

The primary overseer is the Financial Conduct Authority (FCA), which handles registration, ongoing supervision, and enforcement. HM Treasury writes the legislation, while the Bank of England assesses systemic risk and advises on macro‑level stability.

Key AML obligations for crypto firms today

• Registration: Exchange platforms and custodial wallet providers must register with the FCA before they can take customers. The process typically takes 3 months for a prepared firm, but FCA data show an average of 9.2 months due to back‑and‑forth.
• Customer due diligence (CDD): Firms need to verify identity using at least two independent sources, keep records for five years, and apply a risk‑based approach to each client.
• Enhanced due diligence (EDD): Required for politically exposed persons (PEPs) and high‑risk jurisdictions. In practice, crypto firms apply EDD about 37.8 % more often than traditional banks.
• Travel Rule is a requirement that any transaction over £1,000 must carry originator and beneficiary details that are shared with the counter‑party firm.
• Ongoing monitoring: Automated transaction‑screening against 12+ sanctions lists, real‑time alerts for suspicious patterns, and annual AML training of at least 35 hours per compliance staff member.

Recent and upcoming changes (2025‑2026)

In April 2025 the UK published draft amendment regulations that will reshape three core areas once the FSMA licensing regime takes effect (expected Q1 2026):

1. Elimination of the dual‑registration model - crypto firms will be licensed directly under FSMA instead of the MLR registration route.
2. Mandatory Counterparty Due Diligence (CPDD), aligning with FATF Recommendations 13 and 15. This means firms must verify the ultimate owners of any counterparties, even if they aren’t direct customers.
3. Lowered change‑in‑control notification threshold from 25 % to 10 % of voting rights, a stricter stance than the EU’s 20 % threshold.

The Bank of England warned that the transition period could push some businesses toward friendlier jurisdictions, but HM Treasury’s Economic Crime Plan 2023‑26 promises a 40 % reduction in regulatory burden for firms that meet the new standards.

How the UK compares to other crypto‑friendly regimes

The numbers show the UK’s higher transparency demands (10 % threshold) but also its stronger integration with wider financial‑services regulation. Singapore’s model is cheaper and faster, which explains why 38 % of crypto firms succeed on first try there, versus only 12 % in the UK.

Typical compliance costs and timelines

Based on FCA data released March 2025, a new crypto exchange can expect to spend about £287,500 on technology, legal advice, and staffing before it even touches a customer. Ongoing compliance-annual monitoring tools, staff training, and regulator reporting-adds another £142,300 per year.

Most firms need 6‑9 months of preparation to pass the FCA’s registration checklist. The biggest pain points are:

• Inadequate risk assessments (62 % of failures).
• Insufficient senior‑management oversight (49 %).
• Poor transaction‑monitoring systems (39 %).

Hiring an external compliance consultant is common; a MyComplianceOffice survey found 78 % of successful applicants used one.

Step‑by‑step checklist to get registered today

1. Define your business model: exchange, custodial wallet, or payment service. This decides which FCA licence you need.
2. Run a risk assessment: map out customer types, jurisdictions, and transaction volumes. Use the FCA’s 2025 template to avoid the 62 % failure rate.
3. Build a KYC/AML tech stack: integrate a blockchain analytics provider (e.g., Chainalysis) with a traditional KYC engine that can pull two independent ID sources.
4. Prepare the registration dossier: include senior‑management bios, AML policies, sanctions‑screening procedures, and a 5‑year record‑keeping plan.
5. Submit to the FCA: expect a 3‑month deadline for initial review; be ready to answer follow‑up queries quickly.
6. Implement ongoing monitoring: set alerts for transactions over £1,000, run daily sanctions list updates, and schedule annual 35‑hour staff training.
7. Plan for the FSMA shift: map current policies to the upcoming CPDD requirement and the 10 % control‑change rule.

Cross‑checking each step with the FCA’s July 2025 guidance will save you months of back‑and‑forth.

Common pitfalls and how to avoid them

• Missing the Travel Rule data fields: always capture originator name, address, and wallet address. A simple API hook to your analytics tool can auto‑populate these fields.
• Under‑estimating PEP screening: the UK treats crypto‑related PEPs more strictly. Apply a risk score and run extra checks for any client linked to high‑risk jurisdictions.
• Failing CPDD after FSMA rolls out: develop a third‑party verification workflow now; when the rule becomes mandatory you’ll already be compliant.
• Ignoring change‑in‑control notifications: set up a shareholder‑registry alert that flags any shareholder reaching a 10 % threshold.

Future outlook: where UK crypto AML is heading

By 2027 the UK expects only 85‑95 fully compliant crypto firms, down from the current 147. The goal is a “premium but selective” market that deters illicit finance while offering a stable regulatory home for sophisticated players. If you’re aiming for a long‑term UK presence, investing in robust AML infrastructure now is the only way to avoid being priced out when the FSMA regime kicks in.