Iran’s money laundering; crypto donation ban

Digital assets have had a busy few days of headlines in the United Kingdom, for better and worse, as the country’s finance watchdog said it expected to open a formal gateway for digital currency firms to apply for authorization in September 2026; the following day news emerged that Iranian security forces had used two U.K. digital currency exchanges to move about $1 billion since 2023; then, on January 11, seven top lawmakers urged the Prime Minister to ban digital currency donations to political parties.

FCA steps up regulatory regime preparations

First up, on January 8, the U.K.’s top finance sector watchdog, the Financial Conduct Authority (FCA), published a notice saying that it expects to open a formal ‘gateway’ for digital asset firms to apply for authorization in September 2026, ahead of a new regulatory regime expected to take effect in 2027.

Outside of certain financial promotion and anti-money laundering (AML) rules, the majority of digital assets remain largely unregulated in the U.K. However, this is soon to change.

In April 2025, HM Treasury published a draft Statutory Instrument (SI) that aims to bring the majority of cryptoasset activities under the FCA’s remit, giving the regulator the authority to properly govern and make rules for those activities.

Subsequently, in September, the FCA published a consultation on the proposed application of its rules to firms conducting these soon-to-be-regulated cryptoasset activities. This would include firms needing authorization to operate in the U.K., as well as imposing standards expected of all other FCA-regulated entities.

According to the FCA’s ‘crypto roadmap,’ it expects to publish its final rules later this year, with its new regime to go live sometime in 2027.

In its latest advisory notice, the regulator stated that firms wishing to undertake any of the new digital currency regulated activities will need to be authorized by the FCA under the U.K.’s Financial Services and Markets Act 2000 (FSMA) before the new regime kicks in.

This includes firms that are already registered with the regulator under the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs), the Payment Services Regulations 2017, and/or the Electronic Money Regulations 2011; the country’s AML, payments, and e-money regimes, respectively.

The FCA also emphasized that there will be “no automatic conversion” for those firms already registered under the MLRs, meaning they will need to secure authorization under FSMA before the digital asset regime comes into force.

Likewise, firms already authorized under the FSMA that want to add digital asset activities to their repertoire will need to have “varied” their existing permissions before the new regime begins.

The FCA said that firms that apply during the formal application window but are still awaiting a decision when the rules take effect will be allowed to continue operating temporarily. Meanwhile, firms that miss the window will enter a ‘transitional provision’, allowing them to service existing customers but barring new regulated digital asset offerings until they receive approval.

However, if authorization is ultimately refused, the FCA said the unlucky firm would be required to “exit the UK market in an orderly manner.”

The regulator promised “information sessions” and “pre-application support” to provide an opportunity for firms and their advisors to further understand the new regime and the authorization process, as well as to help firms prepare high-quality applications that may lead to faster assessments and decisions.

This update from the FCA marked a positive step towards the long-awaited regulatory regime for digital assets in the U.K., and what many hope will be an end to the current state of uncertainty surrounding the country’s crypto sector.

Unfortunately, this good news was somewhat overshadowed by less welcome headlines that dropped the following day.

Iranian money laundering

Meanwhile, The Washington Post reported that the Iranian security forces, specifically the Islamic Revolutionary Guard Corps (IRGC), had utilized two digital asset exchanges registered in the U.K. to transfer approximately $1 billion since 2023, thereby evading international sanctions.

The revelation was based on a recently published case study from blockchain intelligence platform TRM Labs, whose upcoming ‘2026 Crypto Crime Report’ identified Zedcex and Zedxion, two U.K.-based front companies, that have facilitated operational financing for Iran’s IRGC.

Together, the named exchanges reportedly processed approximately $1 billion in funds linked to the IRGC, accounting for roughly 56% of their total transaction volume, with that share peaking at 87% in 2024.

“The two identified cryptocurrency exchanges, Zedcex and Zedxion, publicly present themselves as conventional crypto trading platforms,” said TRM Labs. “In practice, they operate as a single enterprise embedded within a broader Iranian sanctions evasion ecosystem, moving value across borders, currencies, and jurisdictions on behalf of one of the world’s most heavily sanctioned military organizations.”

It added that, “the IRGC is an elite arm of Iran’s military and security establishment, designated by the United States, Canada, Australia, and others as a foreign terrorist organization.”

Iran has been under various sanctions on and off since 1979. Between 2006 and 2010, due to its nuclear non-compliance, the country faced a range of international sanctions, including an arms embargo, trade controls, asset freezes, travel bans, and export restrictions. In 2019 and 2020, existing U.S. sanctions on Iran were extended to cover the country’s finance and banking sector.

It added that “Zedcex is not a typical crypto crime story. There was no exploit, no theft, and no scramble to launder funds after a breach.”

Instead, TRM Labs said the case study illustrated a “more mature risk,” namely that of a sanctioned military organization operating exchange-branded digital asset infrastructure offshore, directly embedded in global stablecoin markets, and moving value persistently and at scale.

“For regulators, exchanges, and policymakers, this case is representative of a shift in risk,” concluded the report. “The risk now lies in who controls the platforms themselves, how governance and ownership are structured, and how easily sanctioned actors can operate behind the appearance of legitimate crypto businesses.”

The Washington Post, which first picked up the story, reportedly reached out to Iran’s mission to the United Nations and to the British Treasury’s Office of Financial Sanctions Implementation, both of which declined to comment.

In contrast to the regulatory progress in the U.K., this episode highlights an embarrassing gap in the country’s oversight of its domestic digital asset sector businesses, one that makes the incoming regulatory regime all the more urgent.

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Call for an end to political digital currency donations

Beyond regulation and oversight, the third headline-grabbing moment for digital assets in the U.K. came on Sunday as seven members of parliament wrote to the Prime Minister, urging a ban on digital currency donations to political parties in the country’s upcoming election bill.

The signees, Liam Byrne, Emily Thornberry, Tan Dhesi, Florence Eshalomi, Andy Slaughter, Chi Onwurah, and Matt Western, are all chairs of different parliamentary committees—groups comprising Members of Parliament established to study and address specific matters.

In an X post on January 12, Byrne MP said that “Crypto is opaque, hard to trace, vulnerable to foreign interference and a growing risk to democratic integrity.”

He added that the letter aimed to make sure that “this loophole will be closed.”

In terms of specific concerns, the letter gave five reasons why digital asset donations should be banned, including that “techniques such as the use of crowd-funding platforms, privacy coins, mixers, coin-swap services, and chain-hopping can obscure the identities of the individuals behind transactions and make them almost impossible to trace.”

It particularly highlighted the danger that this anonymity could leave the U.K. open to hostile foreign political interference. In this regard, the letter cited U.S. intelligence reports from 2022 that alleged Russia had spent more than $300 million on influencing elections around the world.

“We do not believe it is prudent or wise to allow a known risk to the integrity of political finance to continue,” argued the letter.

Another reason cited is the existence of existing bans in other countries, such as Ireland, Brazil, and several states in the U.S.—for example, a cap of $100 on digital currency donations in the state of Washington.

However, putting the MPs’ stated fears to one side, the letter was almost certainly also motivated by the announcement earlier in 2025 that Nigel Farage’s right-wing Reform UK party was to become the first U.K. political party to accept donations in digital currency. This was followed in December by the revelation that Reform UK had received a £9 million ($12.12 million) donation from Christopher Harborne, a leading cryptocurrency investor.

Farage himself has also previously admitted to holding some long-term digital assets, telling a conference in London that he was the “only hope” for the U.K. digital currency industry.

Reform’s astonishing rise has seen the relatively new and fringe party go from a 1% vote share in 2020 to a peak of 29% in May of last year—based on YouGov polls of voting intention—putting it ahead of both of the two traditional leading parties in the country, the Conservatives and Labour.

This has naturally caused much concern and soul-searching amongst the old guard of U.K. politics and, coupled with Farage’s vocal enthusiasm for digital currency and digital currency donations, has put the latter in the firing line.

According to a recent report from Politico, Keir Starmer’s Labour Government has been discussing banning digital currency donations for some time, as a part of its upcoming “Elections Bill,” announced by the Ministry of Housing, Communities and Local Government in July.

The bill aims to reform the election system in the U.K., and amongst its proposed changes are increasing the voting age to 16 and new requirements on political parties and their donors, including a clampdown on donations from shell companies and unincorporated associations.

Sunday’s letter from the parliamentary committee chairs—including Onwurah MP, Chair of the Science and Technology Committee, and Slaughter MP, Chair of the Justice Committee—puts further pressure on the government to include a ban on digital asset donations in the bill.

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