A compliance expert has alerted the Financial Conduct Authority (FCA) to recommend anti-money laundering and terror financing checks on TikTok, Financial News reported on Tuesday. The expert noted that virtual tokens on TikTok can be indirectly converted into real money through its creator program, raising concerns.

The review stems from TikTok’s virtual currency system, known as TikTok Coins. Users can purchase tokens with real money and give them away on the platform or during live broadcasts. They can also potentially convert the tokens into cash. The process is similar to cryptocurrency trading.

This system raises regulatory concerns as cryptocurrency businesses are heavily regulated. Critics believe TikTok's handling of virtual currencies could attract the same scrutiny as cryptocurrency platforms. In addition, such cryptocurrency-like transactions also raise concerns about the security of users’ financial data, especially in the current sensitive geopolitical context.

The letter reportedly states: “TikTok, through its rewards program, is facilitating the transmission of funds to [money services companies] and arranging or facilitating the exchange of crypto-assets for currencies, or the exchange of currencies for crypto-assets.”

To date, TikTok and the Financial Conduct Authority (FCA) have not responded to Cryptonews’ requests for comment.

The compliance consultant noted that without anti-money laundering registration, the source of funds for the purchase of virtual tokens remains unclear. The letter also noted that TikTok’s activities caused it to be classified as a money services business under FCA guidance. This classification requires TikTok to comply with anti-money laundering and counter-terrorism laws, including registration and reporting obligations with relevant regulatory authorities.

The FCA has previously taken action against crypto companies that failed to comply with new financial promotion rules introduced in October last year. The crackdown resulted in more than a thousand warnings being issued, demonstrating a strong effort to curb unregistered crypto entities promoting illegal services in the UK.

The regulator also reported that the rejection rate for crypto companies applying for licenses is as high as 87%.