Wire Transfer Regulation & the AML Gap: Why Digital Wallets & Online Marketplaces Must Face Crypto-Level Scrutiny

Digital wallets and online marketplaces are transforming global commerce and payments, yet remain inconsistently regulated under the UK's wire transfer regulations (WTR) and anti-money laundering (AML) framework. While cryptoasset service providers are now subject to robust WTR and AML obligations under the Money Laundering Regulations 2019 (MLR 2019), many digital wallets and e-commerce platforms remain outside the regulatory perimeter. This disparity creates significant vulnerabilities that criminal actors are actively exploiting. This article examines the current regulatory framework, outlines the risks posed by unregulated digital platforms, and proposes a roadmap to align the UK's WTR and AML regime with global best practice.

The Fragmentation of Financial Services

Financial innovation has decentralised the traditional payments ecosystem. Digital wallets such as PayPal, Apple Pay, and Google Pay, alongside platforms like Revolut and Wise, facilitate fast, borderless payment and value transfers. Online marketplaces including Amazon, Shopify, and Facebook Marketplace are no longer merely commercial intermediaries; they now perform payment processing, escrow services, and stored-value issuance.

However, these innovations have not been matched with equivalent regulatory oversight. Under MLR 2019 and the Payment Services Regulations 2017 (PSRs 2017), only firms classified as electronic money institutions (EMIs) or payment service providers (PSPs) are subject to WTR and AML obligations. Many digital wallet providers and online marketplaces do not meet these narrow definitions, leaving a regulatory blind spot.

Emerging Typologies: How Digital Wallets & Online Marketplaces Exploit Gaps

Criminal networks are taking advantage of this regulatory asymmetry. Digital wallets facilitate peer-to-peer (P2P) transfers with minimal identity verification. Prepaid wallets and stored-value accounts are used to obscure the origin of illicit funds. Mule networks and layering typologies enable funds to be moved across borders rapidly, often without scrutiny.

Online marketplaces are similarly exploited. Overpayment and refund fraud schemes are used to introduce illicit funds into the financial system. Gift cards purchased with criminal proceeds are resold on secondary markets to realise 'clean' money. Trade-based money laundering schemes manipulate transaction values across borders via e-commerce platforms.

These typologies are well documented by law enforcement and regulatory bodies, including the Financial Action Task Force (FATF) and Europol. As digital platforms increasingly interface with cryptoasset exchanges and decentralised finance (DeFi) services, the scope for regulatory evasion expands.

Comparative Analysis: Global Regulatory Approaches

The European Union has comprehensively addressed these risks through the Sixth Anti-Money Laundering Directive (AMLD6) and the Markets in Crypto-Assets Regulation (MiCA). Under AMLD6, digital wallets and fintech platforms are classified as 'obliged entities', subject to full AML compliance requirements. MiCA extends FATF's Travel Rule on wire transfers to crypto transactions exceeding €1,000, ensuring the collection and transmission of originator and beneficiary information.

In the United States, the Financial Crimes Enforcement Network (FinCEN) classifies digital wallets as money service businesses (MSBs) under the Bank Secrecy Act (BSA). These platforms must register with FinCEN, conduct customer due diligence (CDD), report suspicious activity, and apply the Travel Rule to both fiat and crypto transactions over $3,000.

In contrast, the UK limits Travel Rule obligations to cryptoasset service providers. Fiat-based digital wallet transfers are not subject to equivalent scrutiny, creating a loophole in the WTR and AML regime.

The Case for Reform: Parity, Transparency & Resilience

To address these vulnerabilities, the UK must expand its WTR and AML framework. MLR 2019 should be amended to explicitly bring digital wallet providers and online marketplaces into scope as "relevant persons". Platforms facilitating the movement, custody, or conversion of funds regardless of whether they handle fiat or crypto should be subject to risk-based WTR and AML obligations.

In addition, the Travel Rule should be extended beyond cryptoasset transfers to include fiat wallet-to-wallet transactions. The principle of transparency must apply equally across all digital value transfer mechanisms. As criminals exploit both regulated and unregulated digital platforms, the regulatory response must be unified and comprehensive.

Harmonising the UK's approach with FATF guidance, AMLD6, and FinCEN regulations would reduce the risk of regulatory arbitrage, protect the integrity of the UK financial system, and enhance the country's credibility in international WTR and AML evaluations.

Operational Considerations for UK Fintechs

UK-based fintech firms operating internationally already face stricter compliance obligations in other jurisdictions. Companies such as Revolut and Wise must meet MSB requirements in the United States and comply with AMLD6 in the EU. The current divergence between domestic and international standards creates compliance complexity, legal risk, and commercial uncertainty.

Aligning UK regulations with global norms would reduce this friction and provide clarity to firms scaling across borders. A more consistent AML perimeter would also ensure that innovation in digital payments does not come at the expense of financial integrity.

Conclusion: A Strategic Imperative for the UK

The exclusion of digital wallets and online marketplaces from the UK's WTR and AML regime represents a systemic weakness. As financial crime becomes increasingly digitised, the regulatory framework must evolve to meet new threats. The distinction between crypto and fiat is no longer meaningful in assessing risk. What matters is the opacity and velocity of transactions - features that characterise both crypto exchanges and unregulated digital wallets.

Extending WTR and AML obligations to digital platforms would future-proof the UK's financial crime defences and close critical gaps that threaten the effectiveness of the current regime. A proportionate, risk-based expansion of the regulatory framework can protect consumers, uphold financial stability, and support innovation in a responsible and sustainable way. Now is the time to act.

Are You Prepared for the Next Wave of Wire Transfer Regulation?

Digital wallets and online marketplaces are redefining financial services but many remain outside the scope of the UK’s wire transfer regulations, exposing firms to growing AML risks. Our white paper on the UK wire transfer regulations  offers clear, actionable guidance on applying the FATF Travel Rule to fiat transactions.

See how OpusDatum’s WireCheck tool can help you monitor, trace, and enforce wire transfer regulation compliance.