Around 85 per cent of crypto-asset firms who applied to the Financial Conduct Authority (FCA) were unable to demonstrate they met the minimum standards required for registration under its anti-money laundering and counter-terrorist financing regime.

The Treasury Committee report states that the FCA found that key personnel lacked the appropriate knowledge, skills and experience to carry out their roles and control risks effectively. In a small number of cases, the financial regulator actually identified likely financial crime or direct links to organised crime and referred the firms to law enforcement agencies.

Commenting on the statistic, Martin Cheek, managing director of leading anti-money laundering software platform SmartSearch, said: “This worrying statistic shows why the FCA must continue to take a robust stance on crypto-asset firms and exchanges that look to operate within the UK.

“The cryptocurrency industry must meet the compliance requirements of the 5th Anti-Money Laundering Directive by integrating digital compliance solutions with their own technology. As well as meeting the FCA’s requirements, this would certainly give crypto investors greater peace of mind.

“Cryptocurrency can provide a vehicle for money laundering and a front for some of the world’s worst crimes – people trafficking, tax dodging, sanctions evasion, and international corruption and its victims are often the poorest and most vulnerable in society.

“Keeping the user safe from financial crimes is paramount. By adopting cutting-edge electronic verification (EV), a crypto exchange or wallet provider can check the identity of a user, safeguard assets, and enforce accountability.

“Common practices such as requesting an ID document are no longer sufficient. Not only do they not meet KYC and AML standards, but they can also leave the door open for the exploitation of identity theft.

“EV is a technology advancement that the digital asset industry cannot ignore to manage their compliance responsibilities moving forward.”