Cryptocurrency Regulation in the United Kingdom
The United Kingdom’s approach towards regulating cryptocurrency has been measured but has matured in the post-Brexit financial landscape. Although the UK affirmed in 2020 that cryptoassets are property, there are no particular cryptocurrency laws and cryptocurrencies are not seen as legal tender.
Since cryptocurrencies have no classical definitional characteristics, they are not viewed as ‘money’ and do not come with any systemic risk to the stability of the banking ecosystem. Yet, because the legal consequences, regulations, and status of cryptoassets and currencies can change due to their nature, type, and usage, the Finacial Conduct Authority (FCA) and the Bank of England have issued several 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.
The uncertainty in regulation that is associated with cryptocurrencies, prompted the UK government to set up a dedicated task force in 2018. The taskforce defined three different kinds of cryptocurrencies and the ways cryptoassets can be used.
HMRC has issued a brief on the tax treatment of cryptocurrencies, affirming that their “unique identity” implies that they cannot be compared to traditional investments or payments, and that their “taxability” is a function of the activities and parties involved. Any form of gains or losses on cryptocurrencies are subject to capital gains tax.
Exchanges have registration requirements in the United Kingdom. Despite its exit from the European Union in 2020, the UK previously moved the cryptocurrency regulation requirements put forward in 5AMLD and 6AMLD into domestic law.
From the first month of 2021, every UK crypto asset firm with a presence or market product in the UK - or that offers services to UK citizens - must register with the FCA. Critically, these groups must comply with AML/CFT reporting and customer protection obligations. The FCA guidance stated that all entities that involve themselves in any cryptoasset-related activity must also abide by the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017. There are some amendments to those regulations and they came into action in the first month of 2020 and integrate the recent FATF guidelines.
The FCA licensing
The advent of the FCA licensing requirements in the UK has triggered controversies. At some point in 2020, the FCA promulgated the ban of all retail cryptocurrency derivatives from the sixth day of January, 2021, with the aim of protecting consumers from the volatility of the crypto market.
Furthermore, in December 2020, in the wake of the difficulties of l registering crypto businesses after the inception 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. However, it is worth noting that trading crypto has become prevalent in recent times. There are several trading platforms, including immediate edge, that enables its customers to make money by utilizing a trading bot to predict successful trades on the cryptocurrency market and execute those predictions.
The future of Cryptocurrency
In the future, however, it is likely that the UK will diverge from the EU’s crypto-regulatory landscape to some extent. As of the time of writing, 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 need for flexibility in regulation was reiterated in a subsequent report that was released by the FCA in February 2021.
The cryptocurrency market has exploded in value and it promises to keep rising. Regulations are set up by government of several countries, including the UK, to limit its influence. As discussed in the article, several institutions have been set up by the UK government to regulate and "protect" its citizens. However, whether cryptocurrencies will be banned altogether in the UK or not, only time will tell.