6th July 2018
Cryptocurrency Regulations in the UK
Cryptocurrency Regulations in the
Cryptocurrencies: Not legal tender
Cryptocurrency exchanges: Legal, registration requirements with FCA
The United Kingdom’s approach to cryptocurrency regulations has been measured but has matured in the post-Brexit financial landscape. Although the UK confirmed in 2020 that crypto assets are property, it has no specific cryptocurrency laws and cryptocurrencies are not considered legal tender.
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 FCA and the Bank of England have issued a range of warnings and guidance about their use. 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.Exchanges have registration requirements in the UK. Although it left the EU in 2020, the UK previously transposed the cryptocurrency regulation requirements set out in 5AMLD and 6AMLD into domestic law. From 10 January 2021, all UK crypto asset firms (including recognized cryptocurrency exchanges, advisers, investment managers, and professionals) that have a presence or market product in the UK, or that provide services to UK resident clients, must register with the Financial Conduct Authority (FCA). Critically, these groups must comply with AML/CFT reporting and customer protection obligations. FCA guidance stresses that entities engaging in activities involving crypto assets must also comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). Amendments to those regulations came into force in January 2020 and incorporate the latest FATF guidelines.
The introduction of FCA licensing requirements in the UK has not been without friction. In late 2020, the FCA announced that retail cryptocurrency derivatives would be banned from 6 January 2021 in order to protect consumers from market volatility. In December 2020, following difficulties registering crypto businesses after the introduction of the licensing requirements, the FCA implemented a “temporary registration regime” because it had not been able to process all registration applications. The temporary regime shifted the registration deadline to 9th July 2021.
After leaving the EU in 2020, it is likely that the UK’s cryptocurrency regulations will remain largely consistent with the bloc in the short term, implementing directives equivalent to the EU’s Markets in Crypto-assets (MiCA) and E-Money proposals, along with various Payment directives.
In the future, however, it is likely that the UK will diverge from the EU’s crypto-regulatory landscape to some degree. Currently, there is no specific UK crypto legislation on the horizon but HM Treasury guidance, issued via the UK Crypto Asset Task Force in January 2021, emphasized the UK’s intention to consult on bringing certain cryptocurrencies under the scope of ‘financial promotions regulation’ and to continue to consider a ‘broader regulatory approach’ to crypto assets. In particular, the report explored possibilities for the regulation of stablecoins – which are currently banned by the FCA. The call for regulatory flexibility was echoed in a subsequent report published by the FCA in February 2021: the potential introduction of stablecoin regulation is a sign that the regulator’s attitude to cryptoassets may be changing.