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Crypto ATMs: where old technology meets the new world

Just over 55 years ago, the world’s first ATM was installed at a Barclays branch in Enfield, London. Today, we rarely think twice about using an ATM to withdraw cash at any time, but back in the late 1960s, accessing cash meant a visit to the bank during office hours.

With the rapid rise of cryptocurrencies, it’s no surprise that ATM technology is being adapted to allow users to buy or sell crypto assets, like Bitcoin, in exchange for cash or via a debit card. However, despite the innovation, the legal landscape surrounding ‘crypto ATMs’ in the UK is fraught with challenges.

Regulatory Framework for Crypto ATMs in the UK

Since 10 January 2020, businesses that conduct crypto-asset activities in the UK must be registered with the Financial Conduct Authority (FCA) under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). They are also required to comply with these anti-money laundering regulations.

In March 2022, the FCA issued a stern warning to operators of crypto ATMs in the UK, instructing them to shut down their machines or face enforcement action.[1] At the time, no cryptoasset firm, let alone one providing crypto ATM services, had been approved in the UK. As a result, all crypto ATMs operating under the MLRs were deemed illegal, and the FCA strongly advised consumers not to use them.

This warning followed the Upper Tribunal case against Gidiplus [2] in February 2022. The FCA rejected Gidiplus’ application for registration due to concerns over inadequate anti-money laundering (AML) systems and controls. The tribunal found that Gidiplus lacked the necessary expertise to meet its obligations under the MLRs, reinforcing the need for robust compliance measures for any business engaged in crypto-asset activity. This case underscored the challenges faced by companies in gaining FCA approval for crypto-related services and the high standards required to operate legally in the UK.

FCA Inspections and Law Enforcement Efforts

In addition to these legal actions, in early 2023, West Yorkshire Police, in collaboration with the FCA, inspected several sites around Leeds suspected of hosting illegally operated crypto ATMs. Cease and desist letters were issued to operators, warning them that breaches of regulations would result in investigations under the MLRs, which carry a potential maximum sentence of ‘two years in prison’.

Mark Steward, the former Executive Director of Enforcement and Market Oversight at the FCA, commented on the seriousness of the issue:

“Unregistered Crypto ATMs operating in the UK are doing so illegally. We will continue to identify and disrupt unregistered crypto businesses operating in the UK. Crypto businesses operating in the UK need to be registered with the FCA for anti-money laundering purposes. However, crypto products themselves are currently unregulated and high-risk, and you should be prepared to lose all your money if you invest in them.”

Recent Developments: First Individual Charged for Operating Illegal Crypto ATMs

Fast forward to 10 September 2024, and the FCA has made significant strides in its crackdown on illegal crypto ATMs. In a landmark move, the FCA charged its first individual, Olumide Osunkoya, a director Gidiplus, for running crypto ATMs, which processed £2.6m in crypto transactions across multiple locations between 29 December 2021 and 8 September 2023 without the required registration.

On 30 September 2024, Mr Osunkoya pleaded guilty to 5 offences at Westminster Magistrates’ Court (2 offences under Regulations 86 and 92 of the MLRs, 2 offences under the Forgery and Counterfeiting Act 1981 relating to false documents created and possession of criminal property under the Proceeds of Crime Act 2002). Despite the FCA’s refusal for Gidiplus’s registration and the Upper Tribunal’s ruling, Mr Osunkoya continued to operate and grow the crypto ATM network in local convenience shops across the UK. Mr Osunkoya is suspected to have made substantial profit from the illegal operation receiving a margin on each transaction ranging between 10-60%.

Money Laundering Risks Associated with Crypto ATMs

Beyond the issue of unregulated operations, crypto ATMs have been linked to money laundering activities. The UK government has reported that these machines are often used by money mules to launder illegally obtained cash. Given that the primary function of crypto ATMs is to facilitate the exchange of crypto assets for cash, they pose a significant risk of abuse by criminals seeking to move illicit funds through the financial system.

Conclusion

As crypto ATMs blend old banking technology with the new world of digital assets, the regulatory challenges are clear. The FCA is making significant headway in cracking down on illegal operators and ensuring that crypto businesses comply with strict anti-money laundering rules. Consumers, too, must remain vigilant, understanding that unregulated crypto products are inherently high-risk. As the legal framework evolves, operators will need to ensure full compliance or face enforcement action, including potential criminal charges, although as things stand, there are no FCA registered crypto- ATM operators.

The FCA’s message is clear: illegal crypto ATMs have no place in the UK’s financial landscape, and the crackdown has only just begun.

By Natalie Tenorio-Bernal

Updated – October 2024