Cryptocurrency regulations in the United Kingdom

From 10 January 2020, the Financial Conduct Authority (FCA) became the anti-money laundering and counter terrorist financing (AML/CTF) supervisor for cryptoasset businesses. Also, the FCA is part of the United Kingdom’s Cryptoassets Taskforce. The Cryptoassets Taskforce report lays out the UK’s policy and regulatory approach to cryptoassets and distributed ledger technology in financial services. It provides an overview of cryptoassets and DLT, assesses the associated risks and potential benefits, and sets out the path forward with respect to regulation in the UK.
From 10 January 2020, existing cryptoasset businesses have had to comply with the Money Laundering Regulations, such individuals and businesses, if this activity is in the course of business carried on in the United Kingdom, were required to be registered with the FCA by 10 January 2021. New businesses, who began operating after 10 January 2020, are required to obtain full registration with the FCA before conducting business.
The UK cryptocurrencies regulations allow users to buy and sell cryptocurrencies. However, in 2021, the FCA banned the offering of crypto derivatives products to retail users in the UK due to a number of inherent risks that the regulatory body believes could negatively affect retail customers of cryptocurrency in the UK.
Bitcoin ATMs in the UK are legal, if licensed and regulated by the FCA.
Regulations on UK VASPs (Virtual Asset Service Providers) have been created so as to not stifle innovation whilst maintaining the integrity of the wider financial system. To operate in the UK, crypto exchanges need to register with the FCA.
Bitcoin and cryptocurrency taxes in the UK are different between individuals and businesses and based on activities, entities and tokens.
UK AML requirements additionally need KYC and CDD checks for all customers of crypto native businesses such as the user’s legal name, their photo id as shown in an official document, and their proof of residence.
In addition, after Brexit, the UK is looking for a fresh start and HM Treasury has called for consultation on how cryptoassets, and specifically stablecoins, should be regulated in the future.
Key points:
- Cryptocurrencies not classed as legal tender
- Virtual Asset Service Providers (VASP) apply to FCA for license
- Taxes based on activities, entities and tokens
- Ban on derivatives offering
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