TikTok may soon face scrutiny from the Financial Conduct Authority (FCA) over concerns that the platform is operating an unregistered crypto exchange in the UK.
This potential regulatory issue adds to TikTok’s growing list of challenges, including ongoing criticism regarding child safety and privacy concerns.
TikTok’s In-App Currency Attracts UK FCA Attention
Local media reported that a compliance expert wrote a letter to the FCA, the UK’s financial watchdog, detailing how TikTok may be operating an unregistered crypto exchange in the country. The allegation focuses on the platform’s virtual coin system and creator rewards program. Based on the report, these qualify as crypto asset-related activities under the FCA’s framework.
TikTok’s virtual economy, underpinned by its in-app currency called ‘TikTok Coins,’ allows users to purchase virtual tokens with real money. These can be exchanged for virtual gifts, and holders can send them to their favorite content creators.
For the platform, this system enhances user engagement and provides creators with a revenue stream. However, compliance experts see it as a tactic to facilitate unregulated financial transactions, citing regulatory loopholes in the FCA’s oversight.
Read more: Crypto Regulation: What Are the Benefits and Drawbacks?
According to compliance experts, TikTok’s virtual coin system should be subject to anti-money laundering (AML) and counter-terrorism financing (CTF) regulations as enforced by the FCA. This is because it enables the exchange of virtual assets for fiat currency.
Notably, the FCA’s list of approved firms shows TikTok has not registered with the regulator as either a money service business or a digital asset exchange. These two categories would require the social media platform to comply with stringent financial oversight.
Based on the letter to the FCA, the lack of such a registration creates a risk of inadequate supervision. Specifically, the origin of funds used to purchase TikTok Coins remains unclear, making the platform more susceptible to use for illicit activities, including money laundering.
The compliance expert also highlighted TikTok’s lack of transparency in verifying user accounts, particularly those with minimal information. According to the letter, this lack of clear identification could allow users to engage in illicit activities without detection.
In hindsight, however, TikTok banned cryptocurrency advertising on its platform in 2021. Still, many crypto bloggers using the platform continue to lure users into dubious crypto schemes. Last week, TikTok launched a new clicker game called SonicX based on the Solana blockchain.
UK FCA Increases Regulatory Scrutiny for Digital Assets
As these fears spur, it is worth mentioning that the FCA has been stepping up its efforts to regulate the digital asset sector. So far, only 48 crypto firms stand registered on the regulator’s list out of approximately 500 applications. This reflects the UK financial watchdog’s stringent standards, with an 87% rejection rate for crypto firms applying for licenses.
In July, the regulator reinforced its commitment to this mission by fineing Coinbase’s UK division for failing to meet AML standards.
“FCA just fined Coinbase UK subsidiary $4.5 million for serving high risk customers,” one user on X commented at the time.
On the other hand, TikTok’s virtual economy is not the first regulatory clampdown against social media-related platforms. In January, concerns were raised over the Telegram tap-to-earn game Notcoin, a meme coin circulating within the TON blockchain’s ecosystem, with its legitimacy questioned.
Meanwhile, the FCA’s expected probe into TikTok adds to the platform’s list of challenges. According to Forbes, thirteen state attorneys general in the US and the District of Columbia have levied a multi-state lawsuit against TikTok. The lawsuit centers on the platform “creating an intentionally addictive app” that is allegedly harming teenagers and children.
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