Short-form video app TikTok is facing scrutiny in the UK for allegedly operating like a cryptocurrency exchange. A compliance expert alerted the Financial Conduct Authority (FCA) about concerns that TikTok’s virtual currency system, TikTok Coins, could be indirectly converted to real money through its creator program. This process mirrors cryptocurrency transactions, raising regulatory concerns and questions about user financial data security. Critics argue that TikTok’s handling of virtual currencies may attract the same scrutiny as traditional cryptocurrency platforms.
The compliance consultant highlighted that without anti-money laundering registration, the origin of funds used to purchase virtual coins on TikTok remains uncertain. Based on FCA guidelines, TikTok’s activities qualify it as a money service business, requiring compliance with anti-money laundering and counterterrorism laws, including registration and reporting duties to relevant regulators. The FCA has recently cracked down on unregistered crypto firms in the UK, issuing over a thousand warnings and reporting an 87% rejection rate for crypto firms applying for licenses, showing a strong effort to curb illegal services in the industry.
The concerns surrounding TikTok’s virtual currency system stem from the ability for users to purchase coins with real money and gift them on the platform or in livestreams, potentially converting them back into cash. This has raised questions about the security of user financial data and the similarity of TikTok’s operations to traditional crypto exchanges. The letter to the FCA suggests that TikTok’s rewards program is facilitating money transmission to money service businesses and engaging in activities related to the exchange of cryptoassets for money or vice versa.
TikTok and the FCA did not respond to requests for comment regarding the compliance expert’s alert. The lack of clarity around the origin of funds used to purchase virtual coins on TikTok is a major concern, especially given the platform’s extensive user base and global reach. The potential classification of TikTok as a money service business could subject it to increased regulatory oversight and compliance requirements, similar to those imposed on traditional cryptocurrency platforms operating in the UK.
The FCA’s crackdown on unregistered crypto firms in the UK may extend to platforms like TikTok if they are found to be engaging in activities that qualify them as money service businesses. The regulator’s efforts to enforce anti-money laundering and counterterrorism laws in the cryptocurrency sector have led to increased scrutiny and enforcement actions against non-compliant entities. TikTok’s operation like a cryptocurrency exchange raises red flags for regulators and underscores the need for tighter regulations and oversight in the digital asset space to protect users and prevent illegal activities.
As the FCA continues to monitor and regulate the crypto industry in the UK, platforms like TikTok may face increased scrutiny and potential enforcement actions if they are found to be operating without proper registration or compliance with anti-money laundering laws. The overlap between virtual currencies on social media platforms and traditional cryptocurrencies poses challenges for regulators and underscores the importance of setting clear guidelines and enforcing them to ensure the integrity and security of financial transactions in the digital asset space.
