UK Confirms Regulatory Regime for Cryptoassets Insights June 8, 2024

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. In addition to its role as a consultee and member of the Taskforce, the BoE is considering the introduction of a central bank digital currency (CBDC), although this has not yet been implemented. The European Union has passed no specific legislation relative to the status of bitcoin as a currency, but has stated that VAT/GST is not applicable to the conversion between traditional (fiat) currency and bitcoin. KYC can provide businesses with personal identifying information such as customer IDs, passports, driver’s licenses, and photos.

cryptocurrency regulations uk

In 2022, the taskforce reported its conclusions, suggesting that while a UK CBDC would bring some financial advantages, it would also introduce significant challenges for the country’s financial stability and for consumer privacy. Although it has left the EU, it is likely that UK cryptocurrency regulations will remain largely consistent with the bloc in the short term. The UK will implement, for example, directives equivalent to the EU’s Markets in Crypto-assets (MiCA) and E-Money proposals, along with various AML directives. The Crypto and Digital Assets APPG is made up of cross party MPs and Lords who bring broad experience and expertise from a range of sectors including financial services, foreign affairs, digital innovation, women and equalities, international trade, and economic crime. Simply put, the cost of lawyers, advisors, and consultants pales compared to having to undergo an enforcement action. But both will be considered in any go-to-market strategy for a company that works in blockchain and cryptoassets.

The Law and the Future of Cryptocurrency

The Act officially appointed the Financial Services Commission as a regulator for virtual assets and outlined their legal and illegal uses. Additionally, the Act ensured user protection by requiring issuers or service providers to follow certain practices. “I am very pleased to present these final proposals for cryptoasset regulation in the UK on behalf of the Government,” Andrew Griffith, the U.K. Phase 2 will broaden the range of cryptoassets subject to UK regulation beyond the fiat-linked stablecoins covered under Phase 1. The Phase 2 Consultation Response is broadly consistent with the UK government’s previous proposals for the regulation of cryptoassets under this phase, although there are certain important developments, which we discuss below.

The consultation closed on 26 April 2021 and the government published its initial response here. The legal and regulatory status of crypto assets varies across jurisdictions and depends on the specific features and functions of each crypto asset. Some crypto assets may fall within the existing regulatory frameworks, while others may be unregulated or subject to new rules. This creates complexity and ambiguity for clients and lawyers who need to navigate the different and evolving regulatory regimes and comply with the relevant obligations and requirements.

Read the FinTech 2024 outlook Crypto litigation publication.

CARF also contains a Multilateral Competent Authority Agreement on automatic exchange of information (the MCAA) to facilitate the exchange of information between signatories to the MCAA. At the time of writing, the UK has yet to announce a timeline for implementing CARF into domestic legislation. One of the core design principles of the new regulatory regime is “same risk, same regulatory outcome”, meaning a focus on achieving the same regulatory outcome where possible, regardless of the technology used. Certain types of cryptoasset identified above may also fall within the definition of e-money under the E-Money Regulations 2011 (the EMRs).

cryptocurrency regulations uk

Officers will also be able to transfer the crypto into a wallet controlled by law enforcement agencies. They will be able to destroy crypto assets “if returning it to circulation is not conducive to the public good.” While cryptocurrency has existed since 2009, governments and regulators globally are still working out ways to govern its uses. Consumers and businesses must be protected from fraudulent activity, and preventative measures must be implemented to fight illicit crypto uses. Cryptocurrencies are decentralized by definition and are not cryptocurrencies, so CBDCs are not discussed in this article. Government on Monday confirmed plans to regulate the cryptocurrency industry, announcing in a consultation paper that it will look to bring in formal legislation for crypto activities by 2024.

Your Guide to Cryptocurrency Regulations in the UK

He reiterated that India does not recognise them as legal tender and will instead encourage blockchain technology in payment systems. Banks may not open or maintain accounts or have a correspondent banking relationship with companies dealing in virtual currencies if that company is not registered with FINTRAC. The recommendations set out in this report are intended to establish a foundation for further discussion and debate regarding the future of cryptocurrency and digital asset regulation in the UK and to help inform policymakers. With Sanction Scanner AML Solutions, crypto businesses can easily comply with local or global regulations. The country’s Finance Bill of 2022 defined virtual digital assets as property and outlined tax requirements for collecting taxes on income from them. In 2023, the South Korean government’s Act on the Protection of Virtual Asset Users went into effect.

cryptocurrency regulations uk

With ESMA having previously expressed concerns over the  application of the grandfathering provisions and calling on national competent authorities to limit their duration, market participants should closely monitor developments in that area. Relevant to the compliance preparedness for market participants, intense regulatory work will continue over the coming months, setting out technical operational details of the new MiCA regime. Finally, the European Commission will be looking at the latest developments in the crypto markets, such as the activity of lending and borrowing of crypto assets, the developments concerning decentralized finance (DeFi) and non-fungible tokens (NFTs), and prospective regulatory treatment thereof. The assessment report, possibly accompanied by a legislative proposal, is due to be published by the end of the year.

What are the main regulations?

For certain transactions equal or exceeding 1,000 euros, there are some additional requirements. The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulation 2022 is the key law explaining the specifics of the Travel Rule in the UK. There is no information regarding the de minimis threshold, which means that certain  information should be transferred regardless of the transaction amount.

In September 2020, the European Commission proposed the Markets in Crypto-Assets Regulation (MiCA)—a framework that increases consumer protections, establishes explicit crypto industry conduct, and introduces new licensing requirements. Exchanges are free to operate in the country, provided that they register with the Australian Transaction Reports and Analysis Centre (AUSTRAC) and meet specific AML/CTF obligations. The SEC is already regulating the sector, demonstrated by its lengthy list of filings against crypto-centric businesses and projects, such as lawsuits and complaints against Ripple, Coinbase (COIN), Binance (BNB), and many others over their crypto products and services. The growth of cryptocurrency from speculative investment to a new asset class has prompted governments around the world to explore ways to regulate it.

A payment arranger would have to assess and approve any overseas stablecoin before the overseas stablecoin can be used in UK payment chains. The FCA has proposed in its discussion paper that issuers of stablecoins at all times hold backing assets that are (i) equivalent in value to the issued stablecoins, (ii) stable in value, and (iii) sufficiently liquid and supported by adequate safeguarding arrangements to allow customers to promptly redeem their stablecoins. [9] JMLSG, Current Guidance, JMLSG (n.d.); The Joint Money Laundering Steering Group (JMLSG), Prevention of money laundering/combating terrorist financing – 2020 Revised Version, Guidance for the UK Financial Sector, JMLSG (June 2020).

Moreover, the HM Treasury now proposes to monitor crypto asset activities in the United Kingdom. This would monitor activities provided by UK firms to persons based in the UK or overseas (natural and legal), as well as those provided by overseas firms to UK persons (natural or legal). Two key publications are seeking to enhance clarity around digital assets, though they do not purport to change regulatory aspects.

It is not easy to find regulatory information right now, and the “Swiss cheese” approach only works if everyone can understand how the slices fit together. The UK, again, is already a leader in this regard, with several leading universities having blockchain, cryptoasset and AI programmes to prepare our citizenry for the emerging technological world. While there are benefits to each of the existing regulations, they are part and parcel of a system of rules that is too complex and therefore does a disservice to UK citizens, Dr Paolo Tasca writes.

[8] News Story FCA, FCA becomes AML and CTF supervisor of UK cryptoasset activities, Financial Conduct Authority (October 1, 2020). Most jurisdictions and authorities have yet to enact laws governing cryptocurrencies, meaning that, for most countries, the legality Forex Vs Crypto Buying And Selling Understand The Differences of crypto mining remains unclear. Companies that deal with security tokens must register with the FCA because they are considered “regulated tokens”. In general, the UK is seeking to move towards a more regulated crypto industry within the next 12 months.