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TikTok’s Virtual Coins Face Regulatory Heat in the UK

Writer's picture: Blockonome GnomeBlockonome Gnome

Concerns about TikTok’s virtual currency system raise questions about potential classification as a crypto exchange, sparking scrutiny over money laundering risks.


TikTok’s Virtual Coins Face Regulatory Heat in the UK

TikTok, the widely popular social media app, is coming under regulatory scrutiny in the United Kingdom over its virtual currency system, sparking concerns that the platform may inadvertently be operating as a crypto exchange. A compliance expert recently raised alarms with the UK’s Financial Conduct Authority (FCA), suggesting that TikTok’s in-app coin system and creator rewards program may fall under activities that require FCA oversight.


At the heart of the issue is TikTok’s virtual currency system, which allows users to buy TikTok Coins with real money. These coins are then used to purchase virtual gifts for content creators, who in turn can convert these gifts into “diamonds,” which can be exchanged for real currency. The compliance expert, who has remained anonymous, argues that this system effectively mirrors a digital asset exchange, as it facilitates the conversion of virtual assets into fiat money.


TikTok, however, is not registered with the FCA as a money service business or a digital asset exchange. This lack of registration raises significant concerns about the platform’s compliance with anti-money laundering (AML) and counterterrorism financing regulations. Without proper oversight, there are fears that TikTok’s virtual coin system could create loopholes for illicit activities such as money laundering.


In a letter to the FCA, the compliance expert highlighted potential risks due to the “lack of transparency” in user identification on the platform. Many user accounts contain minimal information, which increases the risk of TikTok’s virtual economy being exploited for illegal purposes. The letter further pointed out that, without FCA approval, TikTok could be operating outside of necessary regulatory safeguards.


The FCA, which has been ramping up its oversight of the digital asset industry, has already taken a strict stance on crypto-related businesses. By October 2024, it had approved only 48 out of roughly 500 crypto firm applications, signaling its intensified efforts to monitor and regulate the sector. TikTok’s potential involvement in crypto exchange-like activities could prompt the FCA to investigate further and demand regulatory compliance from the platform.


The concerns surrounding TikTok’s virtual economy are not limited to the UK. Similar scrutiny has arisen in other regions. In Australia, TikTok has been referred to the country’s anti-money laundering authority by Shadow Minister James Paterson. Meanwhile, in the U.S., the state of Utah has filed a lawsuit against TikTok, alleging that its reward system facilitates money laundering and even contributes to the sexual exploitation of minors.


As these regulatory challenges mount, TikTok’s management will likely face increasing pressure to address compliance issues and ensure that its virtual currency system adheres to the necessary legal frameworks in the regions where it operates.


photo source / Blockonome

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