How Far Should Crypto Firms Trace a Transaction? FCA Says Risk Should Decide

Brokers and trading platforms handling cryptoassets should be able to explain why their monitoring systems flag a transaction and how far they trace its history, according to proposed guidance from the UK Financial Conduct Authority.London's trading industry is coming home!On 23 October, the FCA opened a consultation on broader updates to its Financial Crime Guide, including cryptoasset checks ahead of the authorisation regime starting on 25 October 2027.

The guide would clarify supervisory expectations, not introduce new AML requirements.

Firms Need to Understand Their Monitoring Tools UK cryptoasset firms already have to check customers and monitor transactions for money-laundering risks.

The FCA’s draft focuses on weaknesses in how those checks are carried out: a firm may have a procedure in place without adapting it to what a particular transaction reveals.

A platform tracing the origin of a crypto deposit, for example, might stop after a preset number of transfers even when the information found so far calls for a closer look.

The FCA treats that as poor practice.

It sets no universal tracing limit; how far a firm follows the funds should depend on the risks it identifies.

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