- TikTok Coins allow users to transact within the platform, potentially converting virtual tokens back into real cash.
- The FCA has heightened oversight of unregistered crypto entities, with TikTok possibly needing to comply with new financial rules.
TikTok, is currently facing scrutiny over its handling of virtual currencies, which some believe resembles the operations of a crypto exchange in the UK. This issue was brought to the attention of the Financial Conduct Authority (FCA) by a compliance expert who raised concerns about potential money laundering and terrorist financing risks associated with the platform’s virtual token system.
The core of the scrutiny lies in TikTok’s use of its proprietary virtual currency, TikTok Coins. These coins can be purchased by users with real money and used within the platform to gift other users or during livestreams.
More crucially, there is a potential for these coins to be converted back into cash, mimicking the functionality of cryptocurrencies. This similarity to crypto transactions has sparked a debate on whether TikTok should be subjected to the stringent regulatory oversight that crypto businesses currently face in the UK.
The compliance expert’s letter to the FCA highlighted that TikTok’s rewards program could be seen as facilitating money transmission to money service businesses (MSBs) and engaging in cryptoasset exchanges. This could classify TikTok as a money service business under current regulations, which would require it to adhere to strict anti-money laundering (AML) and counter-terrorism financing (CTF) obligations, including registration and reporting duties to the regulators.
This revelation comes at a time when the FCA has ramped up its efforts to clamp down on unregistered crypto entities. The authority has issued over a thousand warnings since the introduction of new financial promotion rules in October of the previous year. These rules are designed to curb illegal services promoted by unregistered entities in the UK’s financial markets.
The allegations suggest that TikTok’s operations could potentially expose users to financial risks, especially concerning the security of their financial data amidst geopolitical tensions. The concerns raised are serious, considering the growing scrutiny of digital platforms operating in the financial sector.
As the situation unfolds, the FCA’s response to these allegations could set a precedent for how digital platforms handling virtual currencies are regulated. For TikTok, compliance with these financial regulations could mean a significant shift in how it manages its virtual currency system to ensure it does not operate outside the legal boundaries set for financial service providers in the UK.
