Venturing through the Complex Landscape of Cryptocurrency Regulation: 2025 Threat Analysis by OFSI
The UK's Office of Financial Sanctions Implementation (OFSI) has published a comprehensive report on the increasing risks and compliance challenges for UK cryptoasset firms related to financial sanctions breaches. The report, released on 21 July 2025, highlights key findings from January 2022 to May 2025.
Key Findings
The report identifies several key findings, including:
- Underreporting of sanctions breaches: UK cryptoasset firms have likely underreported suspected breaches since August 2022, with more than 7% of suspected sanctions breaches reported to OFSI involving cryptoasset firms.
- Sanctions evasion via cryptoassets: There is growing misuse of cryptoassets for evading UK financial sanctions, especially linked to Russian designated persons (about 90% of cases), with some involvement from Iran (10%).
- Exposure to sanctioned entities: Many firms have direct or indirect exposure to sanctioned entities like the Russian crypto exchange Garantex, and encounter sophisticated evasion tactics from sanctioned actors from Russia, Iran, and North Korea.
- Complex evasion methods: The use of shell companies, offshore structures, rotating wallet addresses, peer-to-peer exchanges, and intermediaries in jurisdictions with weak oversight (e.g., UAE, Cyprus, British Virgin Islands) helps obscure ownership and evade detection.
- Risks from enablers: Both professional and personal enablers facilitate sanctioned persons in moving and concealing assets using cryptoassets.
- Need for robust compliance: OFSI stresses the importance of strong due diligence, including blockchain analytics for retrospective identification of breaches and addressing exposure to virtual addresses linked to sanctioned persons, alongside timely reporting of suspected breaches.
- Regulatory context: Cryptoassets are treated as any other asset class under UK sanctions and anti-money laundering laws, with firms required to register with the Financial Conduct Authority (FCA) for supervision.
Impact on UK Cryptoasset Firms
The report underscores the need for UK cryptoasset firms to enhance their sanctions compliance programs, integrate stricter controls to detect indirect exposure to designated persons, and improve reporting protocols to OFSI.
Cryptoasset businesses should incorporate sanctions risks explicitly in their risk assessments due to increasing regulatory focus and potential penalties for non-compliance. The report signals heightened enforcement scrutiny and the likely expansion of monitoring and investigative activities targeting crypto firms.
The report serves as a clear warning that UK cryptoasset firms face elevated sanctions-related risks, with significant enforcement and reputational consequences if they fail to strengthen compliance frameworks.
The report also serves as a critical resource for UK cryptoasset firms and stakeholders to strengthen compliance and mitigate exposure to illicit activity. Firms should be proactive in updating systems, training, and policies to account for the emerging threats; vigilant in screening for transaction and counterparty risks; and cooperative with their regulators and with OFSI in reporting suspected sanctions breaches.
The report outlines five core judgements concerning sanctions threats relevant to UK cryptoasset-related services firms. It is almost certain that UK cryptoasset firms have underreported suspected breaches since August 2022. The report also highlights the use of instant exchanges services, decentralised exchanges (DEXs), nested exchanges, Over the Counter (OTC) trades, and peer-to-peer trading as methods used for sanctions evasion.
The FCA's roadmap anticipates the publication of all policy statements and final rules in 2026. The report reflects the growing momentum behind regulation of the sector, with the FCA introducing several regulatory measures from September 2023 to April 2025.
The report serves as a wake-up call, as the UK grapples with the rising adoption of cryptoassets and an evolving sanctions regime, firms face immediate compliance pressures even as the regulatory environment struggles to keep pace with the developing threat. Under UK law, cryptoassets are treated like any other asset class in the context of financial sanctions.
Individuals can use platforms on the dark web to discuss, sell, and promote illicit activity, including sanctions evasion, anonymously. The decentralised nature of cryptoassets facilitates the obfuscation of transaction pathways and payment structures, including through the use of anonymous private wallets.
[1] Financial Conduct Authority (FCA) [2] Office of Financial Sanctions Implementation (OFSI) [3] Financial Conduct Authority (FCA) Register [4] Anti-Money Laundering (AML) Supervision [5] National Crime Agency (NCA)
Investing in technology within the cryptoasset industry is crucial for UK firms to combat sanctions evasion, especially in light of the increasing misuse of cryptoassets by designated persons, particularly those from Russia and Iran. Due to the complex evasion methods such as shell companies and offshore structures, UK cryptoasset firms should incorporating robust blockchain analytics in their sanctions compliance programs.
The growing regulation of the cryptoasset sector, including the FCA's upcoming policy statements and final rules in 2026, underscores the importance of timely reporting of suspected sanctions breaches to regulatory bodies like OFSI. This proactive approach will not only mitigate exposure to illicit activity but also help firms avoid potential penalties for non-compliance with general-news sanctions regulations.
