Government warns emerging tech is fuelling illicit finance as regulatory pressure builds
The UK government has escalated its risk rating for cryptoasset firms and payment service providers, warning that emerging technologies are now central to the country’s money laundering threat.
In its 2025 National Risk Assessment (NRA) of Money Laundering and Terrorist Financing, published on July 17, HM Treasury and the Home Office identified “medium to high” risks associated with electronic money institutions (EMIs), payment service providers (PSPs), and crypto firms.
These sectors are now considered core channels for laundering illicit funds, following a significant uptick in fraud, sanctions evasion, and cross-border abuse since the last assessment in 2020.
The findings will sharpen scrutiny of digital-first financial services, particularly those operating across borders or offering pseudonymous payment rails. The government said its assessment was based on “weak suspicious activity reporting, inconsistent compliance standards, and high exposure to fraud-related predicate offences,” especially among non-bank PSPs and cryptoasset service providers.
“While the majority of transactions are legitimate, the wide adoption of fintech increases criminals’ ability to hide in plain sight,” the report warned.
The NRA highlighted fraud as the single largest source of criminal funds in the UK, now accounting for over 43% of all crime in England and Wales. Cryptoassets were cited as increasingly prominent in laundering activity, driven by the growth of ransomware, investment scams, and the use of privacy-enhancing technologies.
Although the UK has extended the “travel rule” to crypto transactions and brought crypto firms under the Money Laundering Regulations (MLRs), the report noted that large volumes of activity continue to be facilitated by firms based outside the jurisdiction. This was compounded by low levels of suspicious activity reports (SARs) being submitted by crypto and e-money firms, compared to transaction volumes.
Meanwhile, EMIs and PSPs were described as vulnerable to exploitation due to “ease of onboarding, rapid settlement, and limited consumer understanding of risk.”
The NRA also warned of a growing convergence between sanctions evasion and traditional laundering methods, with criminal networks using the same intermediaries, legal structures, and offshore controllers to obscure ownership. Sanctions breaches by financial firms rose sharply, from 147 in 2021–22 to 396 in 2023–24.
Regulatory and enforcement reform incoming
The publication of the NRA comes as the government prepares to publish annual AML/CFT priorities under its Economic Crime Plan 2 (2023–26). These will inform both supervisory expectations and resource allocation across the public and private sectors.
A further shake-up of AML supervision is expected, following a 2024 consultation on structural reforms. While no final decision has yet been made, the government signalled that improving consistency and effectiveness remains a priority.
The Financial Conduct Authority (FCA) has also committed to a more data-led supervisory approach, with financial crime identified as a top strategic priority through 2030.
The report is likely to intensify pressure on firms that fall under the MLRs to improve risk assessments, onboarding controls, and transaction monitoring capabilities. Firms are explicitly required to incorporate the NRA’s findings into their own internal risk frameworks.
“Cryptoasset service providers remain high risk,” the assessment concluded. The report urges firms to improve controls and demonstrate effective identification and mitigation of risks.
AI and cross-cutting risk
Artificial intelligence was highlighted as both a risk and an opportunity. While the government acknowledged AI’s potential to improve detection of suspicious patterns, it also flagged the technology’s potential to scale predicate offences, particularly fraud, and to support more sophisticated laundering methods.
Cross-cutting concerns were also raised around sectors not currently regulated under the MLRs, such as schools, universities, and football clubs, which may become subject to closer oversight in future assessments.
As the UK continues to position itself as a leader in digital finance and AML enforcement, the government said its overarching aim remains to ensure “crime doesn’t pay, victims are compensated, and criminal networks are starved of funds.”
“It is essential to tackle money laundering so that crime does not pay, victims are compensated, and criminal networks are starved of the funds they need to operate,” the report stated.
