The UK government has raised concerns over crypto firms failing to report breaches of financial sanctions, highlighting gaps in compliance and increasing cyber threats from state-linked hackers. A newly released threat assessment by the Office of Financial Sanctions Implementation (OFSI) reveals that underreporting has likely persisted since 2022.
Crypto and Sanction Breaches: Growing Regulatory Scrutiny in the UK
According to the OFSI, many UK-based crypto asset firms are unintentionally failing to meet reporting obligations. These obligations have been in place since August 2022, following widespread sanctions on Russia after its invasion of Ukraine.
The OFSI report outlines that a significant portion of non-compliance is inadvertent, caused by either direct or indirect exposure to sanctioned individuals. This includes instances where crypto wallets may be linked to a sanctioned entity or where transactions have obscured origins.
Since January 2022, over 7% of all reported suspected sanction breaches involved crypto asset firms, a notable figure given the relatively small size of the sector in traditional finance.
Crypto Firms Vulnerable to North Korean Cyber Threats
The report also emphasized that UK crypto companies face a high risk of cyberattacks from North Korean hackers. These groups are often affiliated with sanctioned entities and known for targeting digital asset platforms to fund state operations.
This adds a layer of complexity for compliance teams, who now have to guard against not only legal risks but also advanced cyber intrusions.
Sanctions Extend to Crypto: No Regulatory Loopholes
Since early 2022, the UK, EU, and US have made it clear that sanctions regulations apply fully to digital assets and exchanges. Despite this, many crypto operators may still lack the compliance frameworks necessary to identify suspicious activity tied to sanctioned individuals.
There are currently 55 crypto asset firms registered under the UK Financial Conduct Authority’s anti-money laundering (AML) regime, yet it remains unclear how many of these have submitted reports to OFSI.
Regulatory Compliance Now a Priority
With global regulators tightening oversight, UK crypto firms are being urged to adopt stricter compliance and monitoring tools. The government’s position is unambiguous: failing to report sanctions violations — even unintentionally — could lead to enforcement actions.
This report marks a turning point, signaling that crypto must meet the same legal standards as traditional financial institutions. As crypto adoption grows, so too will the expectations for transparency and accountability.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.