TLDR:
- TikTok’s virtual coin system may classify as crypto exchange activity in the UK
- A compliance expert warned the FCA about potential regulatory issues
- TikTok is not registered with the FCA as a digital asset exchange
- Concerns raised about money laundering risks and lack of oversight
- Similar concerns have been raised in Australia and Utah
TikTok, the popular social media platform, is facing potential regulatory challenges in the United Kingdom due to its virtual currency system.
A compliance expert has raised concerns with the Financial Conduct Authority (FCA) that TikTok’s coin system and creator rewards program could be classified as crypto asset-related activities, potentially requiring regulation under the FCA’s framework.
The TikTok Coins system allows users to purchase an in-app currency with real money. These coins can then be used to buy virtual gifts for content creators.
The creators can convert these gifts into ‘diamonds,’ which can be exchanged for fiat currency. This system, according to the compliance expert, effectively enables the exchange of virtual assets for fiat currency.
The main issue highlighted is that TikTok has not registered with the FCA as a money service business or digital asset exchange. This lack of registration could create a risk of inadequate oversight regarding the origin of funds used to purchase virtual coins.
The FCA’s list of approved firms does not include TikTok, which may subject the platform to scrutiny under anti-money laundering and counterterrorism financing regulations.
The compliance expert, whose identity remains undisclosed, sent a letter to the FCA arguing that TikTok’s virtual economy qualifies as crypto asset-related activities. The letter suggests that this lack of registration creates a potential loophole for illicit activities, including money laundering.
The expert also pointed out a “lack of transparency” in identifying user accounts, particularly those with minimal information, which could increase TikTok’s vulnerability to illegal activities.
This development comes at a time when the FCA has intensified its scrutiny of digital assets.
The regulator has been investing in staff and resources to monitor the sector more closely. By October 2024, the FCA had approved only 48 out of approximately 500 crypto firm applications, reflecting its heightened oversight of the industry.
The concerns raised about TikTok’s virtual currency system are not isolated to the UK. Similar issues have been brought up in other countries. In Australia, TikTok has been referred to the country’s AML authority by Shadow Minister James Paterson. The platform is also currently hiring more compliance staff, possibly in response to these growing regulatory concerns.
In the United States, the state of Utah is suing TikTok over alleged money laundering through its reward system. The lawsuit also includes accusations of facilitating the sexual exploitation of minors, adding another layer of complexity to the platform’s regulatory challenges.