This is a tricky one. Cryptocurrency Regulations in the UK are derived from a mishmash of EU and other countries regulations.
Are Cryptocurrencies Regulated in the UK?
Cryptocurrencies are not governed in the UK under the classification of “legal tender” – money.
How Does the Bank of England fit into Cryptocurrency Regulations?
Another reluctant participant in cryptocurrency regulations is the Bank of England. Essentially the BoE says crypto is “not money” and does not pose a risk to the economy.
However, BoE and FCA seem to be keen to issue statements, if not adopt crypto into the mainstream. These statements usually take the form of warnings and so forth.
That doesn’t mean to say people don’t put value on them, because they can have extrinsic value. But they have no intrinsic value…I’m going to say this very bluntly again. Buy them only if you’re prepared to lose all your money. I’m afraid currency and crypto are two words that don’t go together for me.”Andrew Bailey, Governor of the Bank of England. May 2021.
Cryptocurrency Regulations – What the UK has Banned
The FCA banned the offering of Crypto derivatives to clients in January 2021. This means that companies cannot offer any financial tools to clients that are underpinned by cryptoassets.
The FCA basis for this ban fell under the following points:
- Inherent nature of the underlying assets, which means they have no reliable basis for valuation.
- Prevalence of market abuse and financial crime in the secondary market (eg cyber theft).
- Extreme volatility in cryptoasset price movements.
- Inadequate understanding of cryptoassets by retail consumers.
- Lack of legitimate investment need for retail consumers to invest in these products.
Unregulated transferable cryptoassets are tokens that are not ‘specified investments’ or e-money, and can be traded, which includes well-known tokens such as Bitcoin, Ether or Ripple. Specified investments are types of investment which are specified in legislation. Firms that carry out particular types of regulated activity in relation to those investments must be authorised by the FCA.FCA Statement. October 2020.
The FCA also banned the Binance exchange as it could not be “effectively supervised”. This is presumably due to the complexity of the transactions taking place through this global company and its lack of AML controls.
What Regulation is in Place for Cryptocurrency Exchanges?
Indeed, the UK HMRC actively monitors exchange withdrawals of over ~£5,000 with the compliance of the exchanges. Therefore, you will sign up to share your withdrawal amounts when you sign up for a crypto exchange.
The rest of the exchange regulation is fairly typical finance platform regulation.
How Do You Register a Cryptocurrency Exchange in the UK?
At this time, there is a Temporary Registrations Regime (TRR) for existing cryptoasset businesses from 9 July 2021 to 31 March 2022 in place. This means that a lot of applicants are not meeting AML requirements.
It’s fair to say the complexity of the possibilities of cryptoassets in exchanges will take many more years to define and unravel. Therefore, regulation will be catching up just as the crypto market pivots again.
Taking Crypto Payments as a Business
It’s quite easy to take Crypto payments in the UK as a business. Payment gateways like Alfacoins, Coinsbank and Bitpay can be used for online payments. Also, the eCommerce framework Shopify allows crypto payments.
SumUp, the card provider used to take crypto payments through integration with Bitpay. However, this has since ceased.
If you wish to become a payment gateway, however, you will need to route through the FCA regulations.