Partial regulation exists in some countries, with others taking steps to regulate as much of the space as possible. In the EU, laws are developing requiring crypto service providers to identify illicit crypto uses. In October 2022, the lower house of the British Parliament recognized crypto assets as regulated financial instruments. The draft bill extends current laws regarding uk crypto exchange regulation payments-focused instruments to stablecoins. Global investors and cryptocurrency businesses operating in the UK will need to adapt to the new regulatory framework, which may lead to more responsible and secure investment practices. Additionally, the UK’s willingness to engage with the cryptocurrency market in a regulated manner may encourage other countries to follow suit.
The FCA maintains a register of crypto asset providers that fall under UK money laundering regulations (MLR 2017 with amendments) and issues guidelines. The new regime also includes communications to high-net-worth and sophisticated investors. Last month the UK Financial Services and Markets Act 2023 (the “2023 Act”) was passed into law and brought crypto-assets under the UK’s broader financial regulatory regime by amending the U.K. Financial Services and Markets Act 2000 (“FSMA”), including FSMA’s rules on financial promotions. In February 2022, following Russia’s invasion of Ukraine, the UK joined other Western countries in imposing sweeping sanctions against Vladimir Putin’s regime.
That is why UK crypto exchange operating needs to be FCA registered, except that some crypto assets services can obtain e-licenses instead of registering for FCA. According to the Bank of England, since cryptocurrencies lack classical definitional characteristics, they are not considered ‘money’ and do not pose a systemic risk to the stability of the banking ecosystem. However, because the legal consequences, regulations, and status of crypto assets and currencies can change depending on their nature, type, and usage, the Financial Conduct Authority (FCA) and the Bank of England have issued a range of warnings and guidance about the use of cryptocurrency in the UK. Those warnings concern the absence of regulatory and monetary protection, the status of cryptocurrencies as stores of value, and on the dangers of speculative trading and volatility.
Blockchain & Cryptocurrency Laws and Regulations 2024 United Kingdom
This will depend on whether the product or activity falls within the definition of “controlled investment” or “controlled activity” in section 21 of the Financial Services and Markets Act 2000 (FSMA) (which prohibits unauthorised financial promotions). UK crypto companies have to follow a substantial number of regulations to stay compliant and avoid penalties. At the same time, the UK government is working towards making these regulations clearer.
Second, it gives HM Treasury broad powers to introduce future regulation of DSAs, including as to their service providers and payment systems. These changes follow a government consultation on DSAs in May 2022, which may indicate that the intention is to use these powers to bring stablecoin firms under the scope of a special administration regime. The new regime applies to activities relating to “financial investments”, which under FSMA 2023 specifically include cryptoassets, therefore any designated activities are likely to impact cryptoassets. This follows the UK government’s consultation in February 2023 where the intention to create new designated activities tailored to the cryptoasset market was expressed (see our alert here). The British treasury unveiled its proposed regulations for the crypto sector in February, saying it would subject digital asset companies to the same oversight as traditional finance firms. The government has sought to balance the need to regulate the crypto sector while still establishing Great Britain as a global crypto hub.
HMRC has confirmed that it considers cryptoassets to be property for the purposes of inheritance tax. UK-domiciled (or deemed domiciled) individuals (for tax purposes) are subject to UK inheritance tax on their worldwide estates. As such, cryptoassets will form part of the individual’s estate and will be subject to the standard inheritance tax rate of 40% (assuming the value of the estate exceeds the £325,000 tax-free threshold). The taxable amount on the cryptoasset(s) will be calculated on the individual’s death.
The MLRs also contain a broad reporting requirement applicable to CEPs and CWPs, which means that they must produce information that the FCA requires relating to their compliance with the MLRs. The FCA makes clear that businesses operating cryptoasset automated teller machines and peer-to-peer providers https://www.xcritical.com/ are in scope of the MLRs, as well as businesses that issue new cryptoassets such as initial coin offerings (ICOs) or initial exchange offerings (IEOs). The transfer of cryptoassets for the purposes of lending or staking triggers a capital disposal and potentially a “dry tax charge” under CGT rules.
AML requirements
The FCA in June 2021 said Binance was not permitted to undertake any regulated activity in Britain. A Binance spokesperson via email on Tuesday said that the company had invested “an enormous amount of time and resources” in ensuring that it is compliant with the Financial Conduct Authority’s rules. The International Organization of Securities Commissions (Iosco) – an umbrella group of regulators from 130 jurisdictions – made the recommendation as part of the first set of international guidelines for crypto regulation. FSMA 2023 grants HM Treasury to establish financial market infrastructure (FMI) sandboxes through statutory instrument and eventually implement their arrangement. Such sandboxes can allow for the testing and assessment of new technologies and practices which would affect “the efficiency or effectiveness of the carrying on of FMI activities in a particular way.” The British government has unveiled its long-awaited plans for regulating cryptocurrencies.
FCA also stated that it would take quick actions when businesses cannot reach the crypto sector’s desired standards and risk market integrity. It highlights the potential misuse of speculations resulting from the crypto sector’s unclarity. In January 2020, the FCA introduced regulatory arrangements that enforce crypto-asset businesses to control how they manage AML and CFT risks. After Russia invaded Ukraine, it also took extra measures regarding crypto assets. FCA has introduced arrangements to reduce and eliminate money laundering risks in trading crypto exchanges in the UK.
Recognition of Cryptoassets as an Investment Within FSMA’s Scope
On 1 February 2023, HM Treasury published a long-awaited consultation paper setting out plans for the UK to regulate crypto and protect consumers. From next month, regulated firms that want to approve marketing of non-regulated firms must begin applying to the FCA for permission by demonstrating that they have the necessary skills and expertise to understand the products being sold. The watchdog, which has long warned investors that they should be ready to lose all of their investments in cryptoassets, said rebuildingsociety.com can appeal the decision. MPs also warned that treating crypto like a traditional financial asset and regulating it via the FCA risked creating a “halo effect” that could lead consumers to believe the industry was “safer than it is” or that they were protected from financial losses, when they were not. “The detailed contents of disclosure/admission documents will be defined by cryptoasset trading venues,” the report said. “However, this could include, for example, information about a token’s underlying code and network infrastructure, known vulnerabilities, risks and dependencies” such as reliance on a third party or decentralized blockchains.
- This could include whether Financial Conduct Authority (“FCA”) authorisation is required and a potential consideration of anti-money laundering (“AML”) regulations, data protection regulations, intellectual property issues and the rules relating to consumer advertising.
- There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data.
- In February 2022, following Russia’s invasion of Ukraine, the UK joined other Western countries in imposing sweeping sanctions against Vladimir Putin’s regime.
- The new rules, which include a cooling-off period for first-time investors, are being rolled out in the hope it will make marketing of crypto products more transparent and accurate.
- Such person will need to determine whether it needs to become an authorised or exempt person, or can rely on an exclusion, in order to avoid being prohibited from carrying out the regulated activity.
- Where a cryptoasset is a regulated “specified investment” (i.e., a security token), then it will likely fall within the definition of “controlled investment” and, therefore, the remit of section 21 of FSMA.
Likewise, with the Customer Due Diligence (CDD) procedures, customers’ risks are determined, and precautions are taken according to these risks. Such measures aim to comply with anti-money laundering and terrorism financing regulations in crypto businesses. Notably, a person might be a CEP or CWP, irrespective of whether they are otherwise regulated in the UK, if they carry on cryptoasset business that is in scope of the new definitions. Therefore, MLR requirements for cryptoasset businesses apply to both regulated and unregulated cryptoasset businesses in the UK. A UK tax-resident but non-domiciled individual who claims the remittance basis of taxation is normally only subject to UK income tax and CGT in respect of non-UK-sourced income and capital gains (arising from the disposal of non-UK-situated assets), respectively, that have been remitted to the UK. HMRC guidance treats the situs of exchange tokens as being the jurisdiction in which the individual beneficial owner of the exchange tokens is tax-resident.
Cryptocurrencies, led by Bitcoin, Ethereum, and a myriad of other digital assets, have made a remarkable impact on the world of finance and technology over the past decade. These decentralized, blockchain-based digital currencies have captured the imagination of investors, businesses, and individuals worldwide. Their potential for borderless, secure, and efficient transactions has driven their widespread adoption. Bybit is not the only company evaluating its UK marketing and operational strategy with the looming October 8th deadline looming.
What are the Regulatory Requirements for Crypto Businesses?
Consumers and businesses must be protected from fraudulent activity, and preventative measures must be implemented to fight illicit crypto uses. Current regulations are unclear at best and don’t provide much guidance for investors. India remains on the fence regarding crypto regulation, neither legalizing nor penalizing its use.
The UK recently has adopted the Travel Rule requirement to its regulation of crypto asset service providers. The Travel Rule requires crypto companies to obtain information from the sender and receiver of crypto assets and share it with counterparty crypto asset service providers. The Government intends to include the financial services of cryptoassets within the regulatory framework established by the UK’s Financial Services and Markets Act 2000 (FSMA). The 2023 Act gives the FCA regulatory oversight of certain types of regulated activities, like arranging deals in or managing investments when crypto is the underlying product. It focuses particularly on how these activities are marketing to consumers and in that way, maybe actually proactively achieve the goals of consumer protection without restricting financial innovation better than what we have seen with the SEC focused primarily on enforcement actions.
Is cryptocurrency legal in the UK?
Although investors still pay capital gains tax on crypto trading profits, more broadly, taxability depends on the crypto activities undertaken and who engages in the transaction. Current financial regulations applying to cryptocurrencies depend on what the cryptocurrency is used for. The Crypto Asset Taskforce was established in the UK in March 2018 to detect these situations that need to be regulated. The Crypto Asset Taskforce creates a chart showing the widespread uses of cryptocurrency and whether the service is within the current scope known as the “regulatory environment.” According to this table, it was announced that crypto assets could be used in three different ways. Crypto assets cover many products, but the most commonly used types are Bitcoin, Litecoin, and Ethereum. In the country, the Financial Conduct Authority (FCA) assumed oversight of the cryptocurrency’s anti-money laundering (AML) and counter-terrorism financing (CTF) activities.
This will “altogether will aim to minimize potential for customer harm and mitigate the conduct, prudential, and financial stability risks arising from those stablecoins, particularly when used for payments,” the announcement said. Two key publications are seeking to enhance clarity around digital assets, though they do not purport to change regulatory aspects. The government has also announced plans to establish a Cryptoasset Engagement Group to work closely with the industry. This would involve the BoE and other key industry figures meeting regularly to discuss the direction of the cryptoasset industry and how best to support its growth.