Cryptocurrency Regulation in the UK

The UK regulatory framework for crypto agreements is partially harmonized with the EU, as the country has adopted the AML/CFT requirements set out in the EU Fifth Anti-Money Laundering Directive (5AMLD) and the Sixth Anti-Money Laundering Directive (6AMLD)before leaving the organization. However, Britain’s national legislation is at an early stage, as the government has only recently announced plans to build an infrastructure that would turn the country into a global hub for crypto technology and investment.

All companies planning to conduct cryptoasset activities in the UK must register with the Financial Conduct Authority (FCA) in order to obtain part of the 4A permit (aka crypto license in the UK). The FCA is the supervisory authority that enforces existing AML/CFT rules and leads the dialogue between regulators and market participants. One such initiative is a two-day CryptoSprint joint event, where essentially regulators meet with innovators to discuss and partner on crypto policy development.

FCA defines cryptoassets as a secure digital representation of value or contractual rights that use some type of distributed accounting technology (DLT) and can be transferred, stored or sold electronically. The regulator currently distinguishes between two categories of cryptoassets – regulated tokens and unregulated tokens.

Regulated tokens are as follows:

• Security tokens amount to a Specified Investment under the Regulated Activities Order (RAO), excluding e-money; they may provide rights to participate in the business (e.g. ownership, repayment of a specific amount of money, or sharing future profits) and under the EU Markets in Financial Instruments Directive II (MiFID II), they may also be transferable securities or other financial instruments.
• E-money tokens – as per the Electronic Money Regulations (EMRs) – are electronically (including magnetically) stored monetary values, represented by a claim on the issuer, which is issued on receipt of funds for making payment transactions.
• Stablecoins – cryptocurrencies that are pegged to the value of fiat currency or precious metals with the aim to reduce their volatility; they’re the latest type of cryptoassets to come under the regulatory framework which will allow for them to be used as a valid form of payment and widen consumer choice.

According to the FCA, the following tokens are unregulated:

• Utility tokens (allowing to gain access to goods or services on a certain DLT platform)
• Crypto exchange tokens (cryptocurrencies used as a means of payment and can be an object of investment pertaining to an increase in their value)

The FCA offers support through the Innovation Hub to those crypto companies who’re looking to launch crypto products and services in the UK and are in need of learning about the applicable legislation.

Newly authorised businesses (crypto licensees) and crypto businesses focused on scaling innovative technologies are supported and supervised by the Early and High Growth Oversight initiative.

If a crypto company is prepared to test its innovations in the market, they can apply to the FCA’s Regulatory Sandbox.

The following regulatory projects are in the pipeline:

• A new financial market infrastructure sandbox which will enable startups and established crypto businesses to innovate, experiment and test business models in a safe environment, within the regulatory framework.
• Cryptoasset Engagement Group to be established and chaired by the Economic Secretary with the goal to facilitate a dialogue with the market participants and advise the government on the crypto industry development.
• Building a competitive tax system for crypto businesses, which will accelerate the development of the market.

Anti-Money Laundering and Counter-Terrorist Financing Legislation

UK-based cryptoasset companies must comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 which sets out obligations of private sector companies exposed to the risks of money laundering.

To be compatible, crypto asset companies must:

• Conduct AML/CFT risk assessment for clients, country of operations, operations, products and services
• Implement applicable AML/CFT systems, policies, controls and procedures, including the transmission of all changes that should be appropriate to the complexity of the business
• Recruit a qualified AML/CFT compliance officer who will be responsible for enforcing applicable legislation
• Training and monitoring of AML/CFT officers
• Continuously monitor transactions and be prepared to report suspicious transactions through suspicious transaction reports
• Compliance with the CMS and implementation of necessary policies through standardized business processes
• Comply with the requirements concerning the identification of political figures
• Development of compatible data recording and security systems and business processes that protect personal data and sufficiency of records for AML/CFT purposes
• Internal audit function, developed and continuously monitored

Obtaining a Crypto license in the UK

Under AML/CFT law, crypto asset companies planning to operate in the UK, providing products or services, are legally required to register with the FCA, which is responsible for their authorization and supervision with an emphasis on consumer protection, Market integrity and fair competition.

The FCA decides on all applications within 6 months. If the application is incomplete, the decision is made within 12 months.

The Department of Innovative Ways can support the application process by explaining the complexities of the rules, including the implications for crypto asset business models.

Companies carrying out the following activities must apply for permission:

• Exchange with cryptocurrencies for fiat money and vice versa
• Exchange with cryptocurrency for cryptocurrency
• Crypto ATM Operations
• Provision of paper storage services
• Facilitating the sharing of cryptographic data
• Participation in Initial Coin Placement (ICO)

Key requirements for the establishment of an authorized cryptographic business in the UK:

• Registered company with physical office (subscriber box not allowed)
• Bank accounts for transactions and cryptocurrency transactions
• Compliance with AML requirements
• Preparation of all necessary documents for obtaining a cryptography license (e.g., business plan, risk management policy in accordance with AML/CFT legislation)

Application Process for FCA AML/CTF crypto asset authorization:

• Applicant pays entrance fee
• 2000 GBP (if the company’s income is less than 250,000 GBP)
• 10000 GBP (if the company’s income exceeds 250,000 GBP)
• Applicant submits completed questionnaire via Connect
• The FCA shall appoint a case officer and proceed with the application
• The applicant submits any additional information or evidence as requested by the official concerned
• The FCA checks the application against various databases and information held by other regulatory agencies in the United Kingdom or abroad;
• FCA assesses the crypto business, considering whether it meets the minimum threshold conditions (which depend on the complexity of the business) described in the Guide
• FCA decides on the application and gives permission Part 4A If the application satisfies
• The FCA shall confirm this decision in writing, including the scope of the authorization, which shall specify which type of regulated activity is permitted, the date on which the authorization begins and the restrictions
• The Financial Services Registry will be automatically updated upon approval

Necessary documents:

• Documentation of directors and owners, including evidence of their relevant experience, competence (e.g., resume) and impeccable reputation
• Shareholder information
• Business plan (including financial model, marketing plan, organizational structure)
• Documentation of risk management procedures and policies related to AML/CFT and all company departments that may be potentially exposed to security or integrity risks

HOW TO OPEN A CRYPTO COMPANY IN THE UK

Before applying for a cryptographic license in the UK, it is necessary to register the company in the UK. One of the most popular business structures in the UK is the Private Limited Company (Ltd). Benefits include the protection of personal assets, tax planning and tax cuts, and even the enhancement of professional image. The new company can be created from abroad.

There are no minimum equity requirements. The precondition for the establishment of a private limited liability company in the UK is the presence of at least one shareholder and one director, who may be the same person and a non-resident UK.

Stages of opening a private limited liability company

• Select a unique name that should include Limited or Ltd
• Selection of directors and secretary
• Selection of shareholders or guarantors
• Identification of people with significant control over the company (e.g. voting rights)
• Preparation of a memorandum of association and articles of association
• Definition of the scope of the company and accounting
• Company registration with House Companies (including registration of official address and receipt of SIC code)
• Company Registration with HMRC for Corporate Tax
• Application for permission to use FCA AML/CFT crypto

TAXATION OF CRYPTOCURRENCY COMPANIES IN THE UK

While the government has not yet built an effective and comprehensive regulatory framework for cryptoassets, the crypto-related tax obligations are already set out in the Cryptoassets Guide, Published in March 2021 by Her Majesty’s Revenue and Customs Authority (HMRC) in accordance with current legislation. The guide describes in detail what records cryptographic enterprises and individuals should keep and what taxes they may be subject to.

The content of this guide is based on policy documents entitled Cryptoassets: A Tax for Individuals and Cryptoassets: A Tax for Businesses that were published in December 2018 and November 2019 respectively.

If the company carries out activities related to the exchange of tokens, it is subject to tax. Such activities include:

• Trademarks
• Token exchange for other assets (including other types of crypto assets)
• Crypto mining
• Providing products or services in exchange for tokens

It is important to note that the tax regime of crypto asset depends on the rapidly evolving crypto industry and is therefore subject to improvement or modification. Partly for this reason, when it comes to paying taxes, each case is assessed individually.

In the UK, the tax year lasts from April 6 to April 5 of the following year. Taxes are determined on the basis of the persons involved in the business and depend on the nature of their activities, as well as such indicators as income, profits and costs.

Types of taxes cryptographic enterprises may be required to pay:

• Corporate tax (CT) – 19
• Digital Services Tax (DST) – 2%
• National Insurance  – rates vary according to the employee’s earnings
• VAT – 20%;

Just as businesses from other industries must declare their revenues and expenses to HMRC, they will apply relevant legislation and case law to decide which taxes should be paid.

Corporation tax

Depending on the legal structure of the business, the Corporation Tax can be levied on the profits and profits of the crypto company and should be calculated on the basis of all exchange token transactions that the company has carried out.

In order to find out if a company has to pay tax to a corporation, it is necessary to calculate their profit/loss after disposing of their markers. Removal includes:

• Selling tokens for fiat money
• Exchange tokens for another type of token
• Using tokens to pay for goods or services
• Give tokens to another person

Moving tokens between public addresses (wallets), which the company controls with profit, is not considered disposal.

HMRC does not consider any of the existing types of cryptassettes to be money or currency, which means that corporate tax laws related to money (for example, currency rules or ignore rules regarding currency gains and losses) do not apply to cryptassettes.

When calculating profits/losses from token disposal, it is important to remember that not all costs are allowed as a deduction.

The following costs can be deducted:

• Amount originally paid for asset
• Commission for inclusion of transaction in distributed ledger
• Advertisement for buyer or seller
• Professional costs for the preparation of a token acquisition or disposal contract
• Valuation or allocation costs to calculate gains or losses

In general, the cost of mining equipment and electricity is not considered as a deductible.

If a company has cryptocurrencies for less than the allowable costs, they will suffer losses. Such allowable losses will have an impact on total profits and should be reported to HMRC.

Digital Services Tax

An online marketing service for the sale of products or services is one of three digital services activities defined for the purposes of a digital services tax. The exchange, which aims to facilitate the sale of cryptocurrencies, is subject to tax.

An exception to the definition of an online market applies when more than half of the market’s revenues during a financial year arise from the facilitation of trade in financial instruments, goods or foreign exchange. However, since crypto asset is not considered among these categories, it is unlikely that crypto asset businesses will be exempt from tax.

VAT

As a rule, the exchange of traditional currencies for cryptocurrency and vice versa is exempt from VAT.

In addition, cryptocurrencies obtained by miners for their exchange token mining activities will generally be outside the scope of VAT, because the activity does not constitute an economic activity for VAT out purposes. For insufficient communication between any provided services and any attention, and because of the lack of customers for mining services.

When cryptocurrencies are exchanged for goods and services, the supply of the cryptocurrency itself will not be subject to VAT.

Crypto regulation in the UK overview

CORPORATE REPORTING REQUIREMENTS IN THE UK

United Kingdom-based companies are required to prepare financial statements in accordance with financial reporting standards. The company and the financial statements must be kept for 6 years from the end of the last financial year of the company to which they belong.

As a rule, most companies must be audited. However, small enterprises may be exempted from liability, unless the shareholders holding at least 10% of the shares (by quantity or value) request it in writing, By sending a letter to the registered office of the company at least one month before the end of the financial year in which the audit is requested. While it was clear that issuers of electronic money of any size were required to conduct audits, other providers of cryptographic products and services should consult the relevant authorities.

Exceptions related to audit are also determined by the financial year. For example, in financial years beginning 1 January 2016 or after 1 January 2016, a company may claim an exemption from auditing if it meets at least two of the following criteria:

• Annual turnover of no more than £10.2 million
• Assets not exceeding £5.1 million
• 50 or less employees

Our team of dedicated and effective lawyers will be happy to provide you with customized support in registering with the FCA and in obtaining a crypto license in the UK. From the beginning of the process you will receive the support of specialists in the field of local legislation, company creation, reporting and tax advice.

Establish a Crypto Company in the UK

The UK has recently set itself the goal of becoming the most desirable country to create and expand a crypto business, and is slowly transforming itself into a crypto-friendly place where innovation is encouraged through dynamic rules. While all this is under development, you can still implement your idea of crypto business in one of the most competitive economies in the world.

The UK business environment boasts several advantages:

• The United Kingdom ranked 8th out of 190 countries on the World Bank’s 2019 Ease of Doing Business Index, which is a clear indication of a favourable business environment
• The United Kingdom ranks 11th out of 180 countries in the 2021 Corruption Perceptions Index, making it one of the most transparent and least corrupt countries
• The United Kingdom ranked 24th out of 177 countries on the 2022 Economic Freedom Index, which included judicial performance, tax burden, regulatory efficiency, freedom of investment, etc.
• Attractive tax incentives (e.g. double taxation agreements, R&D incentives, etc.)
• Innovative regulation
• Flexible labour law
• London, the UK capital, is one of the global epicentres of financial services and entrepreneurship

The UK companies are generally governed by the Companies Act 2006 which covers corporate documentation, company formation and other corporate principles and processes. Other relevant pieces of corporate legislation are the UK Corporate Governance Code and the Insolvency Act 1986.

The public register of the UK companies is maintained by the Companies House. It includes such publicly available information as registered address, a list of current and past officers and images of corporate documents. The Companies House is also responsible for the incorporation, registration and insolvency of companies.

Since cryptocurrency businesses are partially regulated, you’ll possibly have to deal with the Financial Conduct Authority (FCA) whose main responsibility is to enforce AML/CFT regulations.

Types of Business Entities

You can choose from a variety of business structures suitable for participating in fully authorized cryptographic activities. The most common and secure business structures are Private Company Limited by Shares (Ltd), Public Limited Company (Plc) and Limited Liability Partnership (LLP).

They all have one common characteristic – the financial responsibility of shareholders is limited to the value of their investments in the company.

Private company with limited share (Ltd)

One of the most used business structures in the UK is Private Company Limited by Shares (Ltd). Benefits include protecting personal assets, tax planning and reducing taxes, and even improving professional image and trust. The shareholders shall bear responsibility for the obligations of a company only within the limits of their investments.

Features of a private company with a limited share (Ltd):

• No minimum equity requirements
• At least one shareholder (no residence requirement)
• At least one director (who may be a shareholder)
• Allowed to redeem shares
• Directors can receive salaries and dividends that help optimize taxes

Necessary documents:

• Memorandum of association
• Articles of association
• Application for registration
• Confirmation of identity of all directors and shareholders
• Confirmation of address of all directors and shareholders
• Confirmation of registered office address

Financial auditing is mandatory, but small companies may be exempted from it if two of the following amounts are not exceeded:

• Annual turnover – £10.2 million. (approx. 11.9 million. euros)
• Total assets – £5.1 million (approx. 5.9 million. EUR)
• Average number of employees – 50

However, shareholders holding at least 10% of the shares (by number or value) can still apply in writing for a financial audit by writing to the registered office of the company at least one month before the end of the fiscal year, which requires an audit.

Open Limited Liability Company (PLC)

This type of legal entity is selected if there is an intention to build a large-scale business. Shares of a joint-stock company (Plc) can be placed on the exchange and sold to the general public to attract capital. The company can then use the funds to finance R&D and other projects, repay debts or expand its activities.

Compared to any other limited liability company, the Public Limited Company (PLC) is subject to stricter regulation and control, especially if its shares are traded on the stock exchange. In order to ensure accountability and transparency, it was essential to put in place thorough reporting procedures.

Main features of the joint-stock company (Plc):

• The name should end with the words Public Limited Company or their abbreviation Plc
• Minimum share capital – 50,000 GBP (about 59,000 EUR), of which at least 25% must be paid before economic activity begins
• At least two directors
• At least one qualified company secretary
• It is obligatory to invite shareholders to the Annual General Meeting of Shareholders (AOM), where accounts of a company are presented together with the declaration of dividends
• You cannot buy your own shares out of capital or cash
• Allowed to raise funds through loans and retained earnings
• Financial auditing is mandatory and a qualified auditor is required for each financial year

Necessary documents:

• Memorandum of association
• Articles of association
• Application for registration
• Confirmation of identity of all directors and shareholders
• Confirmation of address of all directors and shareholders
• Confirmation of registered office address

Limited Liability Partnership (LLP)

The structure of a Limited Liability Partnership (LLP) is normally chosen by those who prefer to keep their tax liabilities limited and separate and are looking for different levels of partnership with no capital requirements.

This type of business structure is governed by the Limited Liability Partnership Act 2000 and the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009 instead of the Companies Act 2006.

The main features of the limited liability partnership (LLP):

• There is no equity capital, so capital laws do not apply
• No memorandum of association or association charter
• At least two members (without a maximum number) who should not be UK residents and both may be corporate
• At least two nominated members (corporate or physical) at any time
• Some or all partners should have limited commitments
• Partners can directly manage business (instead of, for example, electing a board of directors)
• Lack of rules for internal governance structure
• Adequate accounting records should be maintained and annual accounts should be submitted to the House of Companies
• All earnings are distributed without the possibility of saving them for the next tax year
• He is not liable for corporate tax
• For tax purposes, members have a separate meaning, meaning that each member is personally responsible for the payment of income tax and national insurance, which are charged to their individual profits

Nominated members are equivalent to directors and have more partnership management responsibilities than regular members. They must ensure that the company and its members meet all legal requirements and obligations. Any member may be appointed in accordance with the constituent instrument.

Necessary documents:

• Written agreement (constitutive document) between members, including principles of operation, ways of entering and leaving the partnership, and profit sharing
• Identity documents of all members
• Confirmation of registered office address
• Certificate without objection from the lessor

The instrument of incorporation should contain the following information:

• Partnership name
• Country (England, Wales, Scotland or Northern Ireland) and registered office address
• Information on each member (identification, residence, etc.)
• Details of each nominated member
• Statement of initial material control

Typically, a Limited Liability Partnership (LLP) requires a financial audit. It may be discharged if it satisfies at least two of the following conditions:

• Annual turnover not exceeding £10.2 million. (approx. EUR 12 million)
• Balance not exceeding £5.1 million (approx. EUR 6 million)
• Average number of employees not more than 50

 

For AML/CFT purposes, crypto companies of any legal structure are required to submit an Annual Financial Crime Report via RegData within 60 business days of the company’s Accounting Reference Date (ARD).

What You Need to Do

After proper preparation of all the documentation required by law, registration can be completed within 24 hours. You can register your company online or give us this task.

To open an authorized cryptocurrency company in the UK, you need to take the following steps:

• Select a unique and appropriate name
• Prepare constituent documents
• Recruitment to meet minimum legal requirements
• Identifying and providing information about people with significant control over the company (e.g. voting rights)
• Find and register a physical office in the UK (the mailbox number will not be enough)
• Open a local corporate bank account
• If necessary, transfer of equity capital to a new bank account
• Development and documentation of internal AML/CFT policies corresponding to the size and complexity of your crypto business
• Definition of the scope of activity of the company and accounting
• Company Registration with Company House
• If you create a joint-stock company (PLC), you must apply for a trade certificate from Company House confirming that the original equity has been raised and the company can start operations
• Register with Her Majesty’s Revenue and Customs (HMRC) within three months of registration
• Apply to FCA for AML/CFT Crypto Resolution

A cryptographic company cannot start operating in the UK without FCA permission if it plans to engage in the following activities:

• Exchange or arrange exchange of cryptocurrencies for fiat money or vice versa, or one cryptocurrency for another cryptocurrency
• Install and operate a machine (such as an ATM) that uses automated processes to exchange fiat money for cryptocurrencies or vice versa
• Providing cryptocurrency storage services on behalf of clients or private cryptographic keys designed to store, store and transfer cryptocurrencies

The process of authorization can take 6–12 months and cost 2000 GBP (ca. 2350 EUR) – 10000 GBP (ca. 12000 EUR). If you want to delve deeper into the specifics of crypto authorization in the UK and the prospects of your company, feel free to contact us – we will be happy to offer a personalized consultation that will help you decide whether the UK is a suitable jurisdiction.

Taxation of Crypto Companies in the UK

Cryptocurrencies aren’t considered legal tender and are therefore taxed as traditional assets. One of the rare exceptions is VAT application which is when cryptocurrencies are treated as fiat money. Crypto companies are taxed depending on the purpose of their activities.

Crypto companies are liable for paying the following taxes:

• Corporation Tax (CT) – 19%
• Digital Services Tax (DST) – 2%
• National Insurance Contributions (NIC) – rates vary depending on employee’s earnings
• Value Added Tax (VAT) – 20%
• Stamp Duty (SD) – 0,5%

Our team of dedicated and quality-focused lawyers will be delighted to provide you with tailored, value-added support in establishing a fully authorised cryptocurrency company in the UK. From the very start of the process, you’ll be backed with expertise in company formation, swiftly evolving AML/CFT legislation and taxation. Contact us today to receive a personalised offer.

Also, lawyers from Regulated United Europe provide legal support for crypto projects and help with adaptation to MICA regulations.

What regulatory protections currently apply to cryptoassets in the UK

In 2024, the regulatory landscape for cryptoassets in the UK has been evolving to adapt to the growing popularity and adoption of cryptocurrencies and related technologies. The Financial Conduct Authority (FCA) plays a pivotal role in establishing regulations for the crypto market within the country. Here’s a detailed look at the regulatory protections currently applied to cryptoassets in the UK:

Overview of the Regulatory Framework

The UK’s approach to cryptoassets regulation has been cautious yet progressive, aiming to balance the promotion of innovation with the protection of consumers and the integrity of the financial system. The regulatory stance categorizes cryptoassets based on their characteristics and uses, leading to varying degrees of oversight.

Categories of Cryptoassets

The FCA identifies three types of cryptoassets:

• Exchange tokens: These are cryptocurrencies like Bitcoin and are not regulated by the FCA for their buying, selling, or trading activities. However, anti-money laundering (AML) regulations apply.
• Utility tokens: These provide access to a specific product or service but are not specified investments. While most utility tokens are not regulated, those that meet the definitions of e-money would fall under the FCA’s purview.
• Security tokens: These resemble shares, debt instruments, or units in a collective investment scheme. They are regulated by the FCA, offering consumer protections similar to those applied to traditional financial assets.

Regulatory Measures

Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF)

The FCA requires cryptoasset businesses to comply with AML and CTF regulations. Since January 2020, all UK-based cryptoasset firms must register with the FCA and demonstrate compliance with the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). This includes conducting customer due diligence, monitoring transactions, and reporting suspicious activities.

Consumer Protections

Although the FCA does not regulate all types of cryptoassets, it has issued warnings about the high risks associated with investing in them. The authority has also banned the sale of crypto-based derivatives and exchange-traded notes to retail consumers to protect them from the volatility and complexities of these products.

ICOs and Tokens

Initial Coin Offerings (ICOs) and token sales are assessed on a case-by-case basis. If an ICO involves the offering of a security token or other regulated product, it would require compliance with the relevant financial regulations and may necessitate FCA authorization.

Advertising and Promotions

The UK government has announced plans to bring certain cryptoasset advertising under the FCA’s oversight to ensure it is fair, clear, and not misleading. This move aims to protect consumers from misleading claims and promote higher standards in the cryptoasset market.

Future Regulatory Developments

The UK’s cryptoasset regulatory framework is expected to evolve further, with ongoing discussions about extending the regulatory perimeter to include more types of cryptoassets and activities. The Treasury has consulted on the broader regulatory approach to cryptoassets, indicating a future where there is a more comprehensive regulatory regime designed to foster innovation while protecting consumers and maintaining financial stability.

Conclusion

The regulatory protections for cryptoassets in the UK reflect a cautious approach aimed at safeguarding consumers and the financial system without stifling innovation. By categorizing cryptoassets and applying targeted regulations, the UK is navigating the complexities of the crypto market. As the market evolves, so too will the regulatory landscape, requiring ongoing vigilance from both regulators and participants in the crypto space.

UK crypto regulation 2024

As of my last update in April 2023, any specific regulatory changes planned for 2024 in the UK’s cryptoasset sector were based on proposals, consultations, and the direction of regulatory intent expressed by UK authorities up to that point. Given this, I can project potential directions and focuses for UK crypto regulation in 2024 based on these trends and discussions. However, for the most current details, I recommend consulting the latest publications from the UK Financial Conduct Authority (FCA), HM Treasury, and other relevant regulatory bodies.

The Evolving Landscape of UK Crypto Regulation in 2024

The UK’s approach towards cryptoasset regulation has been gradually evolving to ensure consumer protection, market integrity, and prevention of financial crimes. By 2024, it is anticipated that the regulatory framework could be more comprehensive, reflecting the rapid developments within the crypto market and broader financial technology sector. Here’s an exploration of what UK crypto regulation might look like in 2024:

Enhanced Regulatory Clarity

• Clearer Definitions and Categorizations: The UK may introduce more precise definitions and categorizations of cryptoassets, differentiating between tokens based on their use cases (e.g., exchange tokens, utility tokens, and security tokens) to apply tailored regulatory measures.
• Security Tokens and Investment Regulations: Security tokens, resembling traditional financial instruments, could see more detailed regulatory guidelines, aligning them with existing securities laws and regulations.

Expanded Scope of Regulation

• Broader Regulatory Perimeter: The regulatory perimeter might expand to include activities and cryptoassets not previously covered, such as certain DeFi (Decentralized Finance) applications and NFTs (Non-Fungible Tokens), depending on their use and impact on the broader financial market.
• Stablecoins and e-Money: With the increasing prominence of stablecoins, specific regulations could be developed to address risks associated with their use as a means of payment or store of value, potentially treating them similarly to e-money.

Consumer Protection and Market Integrity

• Enhanced Consumer Protections: Measures to protect consumers from the high risks associated with crypto investments could be strengthened. This might include stricter requirements for firms marketing cryptoassets, ensuring clear risk communication, and possibly introducing compensation schemes.
• Advertising Standards: Regulations around the advertising of cryptoassets could become more stringent, requiring clear, fair, and non-misleading representations, especially when targeting retail investors.

Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF)

• Strengthened AML/CTF Regulations: AML and CTF regulations for cryptoasset firms are likely to be tightened, with enhanced due diligence requirements, better transaction monitoring, and stricter compliance checks.

Cross-Border Cooperation and Compliance

• International Standards and Cooperation: The UK might seek closer cooperation with international regulatory bodies like the Financial Action Task Force (FATF) and align its regulations with global standards to tackle the cross-border nature of cryptoassets and prevent regulatory arbitrage.

Innovation and Support for the Crypto Sector

• Regulatory Sandboxes: Expansion of regulatory sandboxes and innovation hubs to support the development of crypto and blockchain technologies, providing a safe environment for testing innovative products and services under regulatory supervision.
• Guidance and Support for Businesses: Continued efforts to provide guidance and support to crypto businesses to navigate the regulatory landscape, encouraging responsible innovation and growth in the sector.

Conclusion

By 2024, the UK’s regulatory framework for cryptoassets is expected to be more developed, reflecting the dynamic nature of the crypto market and its integration into the broader financial ecosystem. While aiming to ensure market stability, prevent financial crimes, and protect consumers, UK regulators are also likely to continue supporting innovation and the responsible growth of the crypto sector. The exact regulatory changes and their implications would depend on ongoing developments, stakeholder consultations, and the adaptability of regulatory bodies to the fast-evolving crypto market.

What regulation applies to UK-based crypto-asset businesses?

In recent years, cryptoassets have become an increasingly significant element of the global financial system, which requires the attention of regulators and legislative bodies. The UK, as one of the world’s financial centres, is actively working on creating a legal framework to regulate business related to cryptoassets. The main purpose of such regulation is to ensure financial stability, protect investors, prevent money laundering and terrorist financing, as well as promote innovation and maintain confidence in the cryptoasset market.

1. Registration and Compliance with FCA Requirements

The Financial Conduct Authority (FCA) plays a leading role in regulating crypto-business in the UK. Any cryptoasset company must be registered with the FCA and comply with established requirements aimed at combating money laundering (AML) and terrorist financing (CFT). This includes establishing customer identification procedures, monitoring transactions and reporting suspicious transactions.

2. Observance of the Rules of Behaviour

Cryptoasset firms must also comply with the FCA’s rules of conduct, which aim to protect consumers and ensure the fairness, transparency and integrity of financial markets. This includes requirements for clear and understandable disclosure of information about products and services, including the risks associated with investing in cryptoassets.

3. Regulation by Asset Type

The UK seeks to categorise cryptoassets by type for more precise regulation. For example, tokens that are used as mediums of exchange and investment tokens fall under different regulatory frameworks. Investment tokens that provide equity participation, dividend rights or other financial benefits may be treated as securities and subject to appropriate regulation.

4. Protection of Personal Data

Crypto-business regulation in the UK also includes strict personal data protection requirements under the General Data Protection Regulation (GDPR). Companies must ensure that customer personal data is stored and processed securely, and that the rights of data subjects are respected.

Conclusion: In the process of adapting to the rapidly changing world of cryptoassets, the UK continues to develop and refine its regulatory legislation. The main objective of regulation is not only to protect market participants, but also to create conditions for the healthy development of the innovative sector of the economy. An important aspect is the balance between ensuring safety and promoting innovation, which requires regulators to be flexible and predictable in regulatory matters.

 What regulatory protections apply to crypto?

In a world where digital assets are gaining popularity and becoming part of the global financial infrastructure, the issues of cryptocurrency regulation and protection are becoming increasingly important. Regulatory measures aimed at ensuring investor protection, maintaining the stability of financial systems and preventing illegal activities play a key role in integrating cryptoassets into the legal economic space.

1. Regulatory Authorities and Regulations

Different countries approach cryptocurrency regulation in different ways, but the underlying trend is a desire to adapt existing legislative and regulatory frameworks or develop new ones to address the unique challenges presented by cryptoassets. Bodies such as the US Securities and Exchange Commission (SEC), the UK Financial Conduct Authority (FCA) and the European Banking Authority (EBA) are actively working to create and implement regulatory rules and guidelines for the crypto industry.

2. Measures to Combat Money Laundering (AML) and Financing of Terrorism (CFT)

One of the key objectives of cryptocurrency regulation is to prevent its use for money laundering and terrorist financing. In this context, companies dealing with cryptoassets are required to fulfil Know Your Customer (KYC) requirements, keep records of transactions and report suspicious activity to the competent authorities.

3. Investor Protection

Protecting the rights and interests of investors is another critical area of cryptocurrency regulation. This includes ensuring transparency of transactions with cryptoassets, protecting against fraud and market manipulation, and guaranteeing the availability of reliable information about cryptocurrency projects and their issuers.

4. Security and Data Protection Standards

In the cryptocurrency industry, special attention is paid to security standards and the protection of users’ personal data. Regulatory requirements for data storage and processing, as well as for protecting infrastructure from cyberattacks, are aimed at minimising the risks of loss of funds or leakage of confidential information.

Conclusion: Regulation of cryptoassets is in constant evolution as regulators around the world strive to find the optimal balance between supporting innovation and ensuring the protection of market participants. International cooperation and exchange of experience is an important aspect, as cryptocurrencies do not recognise borders and require coordinated efforts for effective regulation. The development of a clear, balanced and adaptive regulatory framework will further enhance trust and security in cryptoassets.

 What regulatory protections currently apply to crypto-assets held with centralised crypto exchanges for customers in the UK?

In the context of the rapidly evolving cryptocurrency market, protecting customer assets held on centralised cryptocurrency exchanges is a key priority for regulators in many jurisdictions, including the UK. Cryptoasset regulation in the UK aims to ensure the transparency, safety and integrity of crypto-market transactions and to protect investors from fraud, abuse and financial loss.

Registration and Control of Cryptocurrency Exchanges Activities

The UK, through the Financial Conduct Authority (FCA), has established registration requirements for all cryptoasset firms, including centralised cryptocurrency exchanges. This obliges exchanges to undergo anti-money laundering (AML) and counter-terrorist financing (CFT) compliance checks, as well as confirm their transparency and reliability as intermediaries in the cryptocurrency market.

Protection of Client Funds

One of the key aspects of regulating cryptocurrency exchanges is ensuring the protection of customer funds. Cryptocurrency exchanges are required to segregate company and customer funds by keeping customer funds in separate accounts. This minimises the risk of losing customer funds in the event of financial difficulties or bankruptcy of the exchange.

Storage and Safety Requirements

Centralised cryptocurrency exchanges are also subject to strict asset storage and security requirements. This includes the use of cold wallets to store the majority of assets offline, reducing the risk of cyberattacks and unauthorised access. Exchanges are also required to implement comprehensive cybersecurity and customer data protection measures.

Transparency and Reporting

To enhance market confidence, the FCA requires cryptocurrency exchanges to provide a high level of transparency regarding their operations, terms of use, and the risks associated with trading cryptoassets. Exchanges must provide regular reports on their activities, as well as information on the status of client funds and assets.

Protection against Fraud and Abuse

The UK is actively working to put in place mechanisms to protect investors from fraud and abuse in cryptoassets. This includes measures to identify and prevent suspicious trading activity, as well as providing recourse to judicial and regulatory authorities in the event of disputes or claims.

Conclusion: The regulation of centralised cryptocurrency exchanges in the UK aims to create a sustainable, safe and transparent environment for trading cryptoassets. Through comprehensive measures to protect customer funds and data, ensure transparency of transactions and combat fraud and abuse, the FCA aims to protect the interests of investors and support the healthy development of the crypto market in the UK.

 What regulation applies to UK-based crypto-asset businesses?

In the context of the rapidly developing world of digital currencies, the regulation of cryptoasset business in the UK is of particular importance. The main goal of legislative and regulatory work in this area is to create conditions for the stable development of the cryptoasset market, ensure consumer protection, and prevent the use of cryptocurrencies for illegal purposes, including money laundering and terrorist financing.

Regulatory Environment in the UK

Financial regulation in the UK, including cryptoassets, is carried out by several bodies, the most significant of which is the Financial Conduct Authority (FCA). The FCA is responsible for controlling and supervising the activities of cryptoasset companies to ensure that they comply with the established rules and standards.

Registration and Compliance

A key requirement for doing business in cryptoassets in the UK is mandatory registration with the FCA. This requirement applies to all firms and professional market participants providing cryptocurrency exchange services, as well as those involved in storing or transferring cryptocurrencies. During the registration process, firms must prove their ability to comply with legal requirements, including anti-money laundering (AML) and counter-terrorist financing (CFT) measures.

Requirements for the Conduct of the Activity

The UK is focused on ensuring a high level of protection for investors and users of cryptoassets. Cryptoasset companies are required to provide clear and complete information about the products and services offered, the risks associated with their use, and the protection of customer data and funds. They are also charged with the responsibility to comply with accounting and financial reporting rules.

Measures to Combat Money Laundering

The FCA introduces strict requirements for crypto businesses in terms of customer identification and verification, transaction monitoring and suspicious transaction reporting. Companies must have effective internal controls and compliance systems in place to minimise the risks of cryptoassets being used for money laundering and terrorist financing.

Conclusion: Regulation of cryptoassets in the UK is aimed at creating a safe and transparent environment for all market participants. Strict adherence to regulatory requirements and standards is key to maintaining confidence in the cryptocurrency sector, its stable development and integration into a wide range of financial services. At the same time, regulators continue to adapt their approaches to supervising the dynamically developing cryptoasset market to meet changing conditions and challenges.