Global watchdog calls for UK to regulate crypto in same way as stocks and bonds 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. 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.

cryptocurrency regulation in the UK

Although both MiCA and the relevant new provisions of FSMA 2023 have similar aims, they differ in their requirements for compliance and in their scope. For example, FSMA 2023 does not include the issuance of cryptoassets in its regulatory scope, unlike MiCA. Yet, FSMA 2023 has the scope to regulate activities related to non-fungible tokens (NFTs), which MiCA excludes. Overall, the new UK rules, in their final form, have been welcomed by participants in the cryptoasset industry in light of their potential to foster responsible innovation against the background of legal clarity.

Registration of a crypto company in the UK

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. Crypto operations have to implement AML regulations and controls like other financial sectors. Organizations serving in the crypto industry must fulfill their AML and KYC obligations during customer account opening. Sanction Scanner’s products automate the AML compliance processes of UK crypto exchange companies with powerful and flexible API support.

  • The statement urged crypto service providers to update their sanctions screening solutions and to be vigilant for ‘red flag indicators’ of sanctions evasion, including transactions involving high risk wallets, and the use of mixing and tumbling services designed to obscure customer identities.
  • Andrew Griffith MP, former Economic Secretary to HM Treasury, had previously raised concerns that the lack of OPE extension to crypto firms might drive international businesses away from the UK.
  • 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.
  • Although the UK confirmed in 2020 that crypto assets are property, it has no specific cryptocurrency laws and cryptocurrencies are not considered legal tender.
  • Those marketing cryptoassets are also required to comply with the CAP Code and the Advertising Standards Authority (the ASA) guidelines.
  • They are no longer the exclusive domain of tech-savvy enthusiasts but have gained traction within the broader investment landscape.

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). Cryptoassets will now be within the scope of regulations on “regulated activities” which include managing investments, issuing electronic money and arranging deals in investments in the UK. Such regulated activities are subject to the general prohibition in FSMA 2000, that is that they must not be carried out by a person unless that person is either authorised by the Financial Conduct Authority (FCA) or is otherwise exempt under FSMA 2000.

The future of crypto regulations in the UK

Reuters, the news and media division of Thomson Reuters, is the world’s largest multimedia news provider, reaching billions of people worldwide every day. Reuters provides business, financial, national and international news to professionals via desktop terminals, the world’s media organizations, industry events and directly to consumers. “The government’s position is that firms dealing directly with UK retail consumers should be required to be authorised irrespective of where they are located,” the ministry said. [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). Most jurisdictions and authorities have yet to enact laws governing cryptocurrencies, meaning that, for most countries, the legality of crypto mining remains unclear.

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. Reform bill that recognizes cryptocurrency trading as a regulated financial activity, received so-called Royal Assent on Thursday to make the bill law, according to a Thursday press release by the U.K. Gherson’s white-collar crime and regulatory team are able to provide advice and assistance with AML, regulatory and sanctions compliance, including in situations involving cryptoassets. The Government is proposing a cryptoasset market abuse regime based on elements of the regimes for financial instruments.

cryptocurrency regulation in the UK

This will entail, among other steps, adopting stricter procedures on communications in respect of marketing cryptoassets. First, it amends the Banking Act 2009 to bring DSAs into the scope of payment systems over which the Bank of England has statutory oversight. Second, it gives HM Treasury broad powers to introduce future regulation of DSAs, including as to their service providers and payment systems.

Cryptocurrency Regulation UK – Is Crypto Legal?

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. The final decision on how cryptocurrencies are regulated in the UK rests with the government. It is likely to place that responsibility with the FCA, which currently ensures firms comply with money-laundering rules, and will soon be tasked with monitoring adverts. Matthew Long, the director of digital assets at the FCA and a member of Iosco’s crypto taskforce, said he acknowledged the Treasury committee’s concerns, but international coordination was key to addressing many related risks. That includes requiring trading platforms to publicly disclose how they vet crypto assets before allowing them to be traded, clearly explain how they store and safeguard clients’ crypto assets, and ensure they are separated from the firm’s own assets that might be used for proprietary trading. With Sanction Scanner AML Solutions, crypto businesses can easily comply with local or global regulations.

The UK announcement comes at a time of reviving fortunes for the crypto sector after bitcoin , the largest cryptocurrency by circulation, had lost much of its value amid the FTX and other scandals over the past year. The ministry said Britain remains committed to creating a regulatory environment in which firms can innovate, while maintaining financial stability so that people can use new technologies both reliably and safely. The ministry said the new rules will be brought under market law, rather than exist as a standalone regime. However, apart from jurisdictions that have specifically banned cryptocurrency-related activities, very few countries prohibit crypto mining. For certain transactions equal or exceeding 1,000 euros, there are some additional requirements. It is important to note that these rates are subject to change and it is recommended that you contact the FCA or relevant sources for the most up-to-date information on the cost of obtaining a crypto license in the UK.

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 ministry also said it would set out regulations on how to manage the failure of a major stablecoin. It said it would accelerate overall implementation of the rules in order to give the sector clarity, with secondary legislation presented to parliament next year. [13] HM Revenue & Customs, HMRC internal manual, Cryptoassets Manual, (March 30, 2021); Coinfirm, UK Cryptocurrency Regulations, Coinfirm (January 11, 2021).

New cryptocurrency offers users tokens for scanning their eyeballs

Breaching this restriction is a criminal offence punishable by a fine and/or up to two years’ imprisonment. Additionally, breach of the prohibition may affect any officer, manager, or beneficial owners’ ability to satisfy the “fit and proper requirements” laid out under the MLRs. Both HMT and the FCA have committed to adopt a hardline approach in enforcing the legislation when it takes effect.

On 1 February 2023, HM Treasury launched a consultation paper, with the aim of ultimately setting regulation going forwards. In various previous blogs, including What is the current state of crypto regulation in the UK and What changes can we expect to UK crypto regulation, Gherson LPP’s criminal litigation, investigations and regulatory team outlined the current state of UK crypto regulation. This insight examine what potential indications this gives for the future of UK crypto regulation.

UK crypto-asset legislation is partially compliant with European Union (EU) regulations, as the country adopted the anti-money laundering (AML) and counter-terrorist financing (CFT) requirements set out in the EU’s Fifth and Sixth Directives (5AMLD and 6AMLD) before leaving the EU. UK cryptocurrency companies are required to comply with the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (the MLRs), which sets out the private sector’s responsibilities to combat money laundering risks. The Regulations cryptocurrency regulation in the UK provide requirements for customer due diligence measures that are monitored and enforced by the FCA to prevent money laundering and the financing of illegal activity through cryptocurrency business. The process for verifying a customer’s identity and financial activities is set out in the Know Your Customer (KYC) guidance. In a move with significant implications for the crypto sector, the UK has enacted legislation to bring cryptoassets within the scope of the existing financial services regulatory regime.

Impact on International Crypto Businesses

FSMA 2023 brings cryptoassets within the scope of the existing regulatory regime under Financial Services and Markets Act 2000 (FSMA 2000) in respect of “regulated activities” and “restrictions on financial promotions”. It has done so through amending the definition of “investment” for the purposes of financial promotions and regulated activity so that it now includes cryptoassets. “Cryptoasset” is defined as “any cryptographically secured digital representation of value or contractual rights that – (a) can be transferred stored or traded electronically, and (b) that uses technology supporting the recording or storage of data (which may include distributed ledger technology)”. In order to preserve flexibility in this rapidly developing area, HM Treasury has been granted the power to amend this definition.

On 1 February 2023, HM Treasury published a long-awaited consultation paper setting out plans for the UK to regulate crypto and protect consumers. 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. As the digital economy continues to expand, regulations will likely play an essential role in ensuring the cryptocurrency market’s long-term sustainability and success. For both crypto enthusiasts and traditional investors, these upcoming regulations in the UK mark a turning point in the evolution of digital finance.

To keep you up to date, we at Sumsub prepared this guide explaining UK regulations and how to follow them. It is important to note that tax rules and guidance can change over time and it is recommended that you consult a Gofaizen & Sherle tax professional for the most up-to-date and accurate information on the taxation of cryptocurrencies in the UK. The FCA has the right to suspend or cancel the registration of a cryptocurrency company at any time after the completion of the registration process if the company does not meet the requirements. It is important to note that these requirements are subject to change and it is recommended that you contact Gofaizen & Sherle’s cryptocurrency license lawyers in the UK for details and specific requirements at this time. In its Policy Guidance (2019), the FCA added another type of token, electronic money (e-money) tokens, which meet the definition of e-money as set out in the Electronic Money Regulations (2018). Iosco also said global standards were crucial for avoiding regulatory arbitrage – a practice in which businesses take advantage of loopholes in different countries’ regulations.

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