Cryptocurrency has become the most popular digital asset recently. Although crypto assets usually cover various products the most common crypto asset types are Bitcoin, Ethereum, etc. Cryptocurrencies are designed to be used as a medium of payment. Bitcoin is controlled in the UK only for money laundering purposes.
The United Kingdom confirmed in 2020 that crypto assets are property, it has no cryptocurrency laws and cryptocurrencies will not be considered as a lagal tender.
The Finance Conduct Authority (FCA) and the bank of England have declared a range of warnings and the use of cryptocurrencies in the UK.
Is cryptocurrency legal in the United Kingdom?
The United Kingdom has announced in 2020 that crypto assets are property; it has no exact cryptocurrency laws. Cryptocurrencies will not be considered a legal medium of exchange.
Uk has no specific legislation governing cryptocurrency but they are slowly developing its approach through case law. The UK law has identified two types of property :
1. Things have physical existence
2. Things in action
Cryptocurrency doesn’t belong to any of either category, however, a legal statement was published in 2019 by the UK Jurisdictional task force, there were strong grounds on which cryptocurrencies are considered as property.
The recognition of cryptocurrency has introduced a new asset category to be considered by professionals as forming an individual’s personal wealth and asset portfolio involves taking measures to secure and seize such assets.
What are the requirements of regulations for the crypto business?
FCA has introduced some measures to reduce and eliminate money laundering risks in the trading of UK cryptocurrencies. KYC and CDD procedures should be carried out in businesses to recognize and evaluate risks. FCA regularly practices checking if the businesses comply with KYC regulations or not.
FCA also declared that they would take definite steps if they could find any business that cannot reach the crypto sector’s preferred standard and risk market integrity. FCA also introduced 2020, new regulatory powers to control crypto-asset businesses and the risk of money laundering and counter-terrorism financing.
Cryptocurrency regulations In the UK key takeaways
- Ban on byproducts offerings
- FCA, treasury and BoE build the crypto asset taskforce
- Cryptocurrencies are not considered legal tender
- Taxes will be based on entities, activities, and tokens
- FCA accountable for AML/ CFT of crypto assets
- VASPs apply to FCA for license
Cryptoassetsdefinations by Uk Regulators:
- E-money: E-money or electronic money would become digital representations of the United States Dollars or the Great British Pound
- Security Coins: Security coins have features of financial securities such as equity or debt tool, as applied by United Kingdom law
- Unregulated coins: These are not security or E-money coins but include:
- Utility coins: coins that are used to buy financial products and asses a blockchain platform.
- Exchange coins: Coins that are mainly used as a medium of exchange such as –Bitcoin, Ethereum, etc.
Are Bitcoin ATMs legal in the UK?
Crypto ATMs look like normal ATMs and allow people to buy cryptocurrencies such as bitcoin, Ethereum, etc. using their bank cards. But there is no company that allows cryptocurrency services in the UK that has a license to work crypto ATMs.
FCA declared to shutting down all the crypto ATMs immediately or they may take action. As per the report, there are 81 functional crypto ATMs in the UK.
UK’s FCA ban on Crypto Derivatives
FCA considers cryptocurrency derivatives too risky for retail customers due to the loss they pose in the form of sudden and unexpected loss. Not only is Bitcoin in particular prone to extreme volatility but the other cryptocurrencies also tend to market manipulation. FCA made some rules banning for sale, marketing as well as distribution to all retail customers of any derivatives that reference unregulated crypto assets by businesses in or from the UK.
FCA cited 5 reasons for the band:
- The intrinsic nature of digital assets do not have a reliable benchmark for calculating value.
- The rate of penetration of abuse or any criminality in the secondary market.
- Digital assets’ price fluctuation is extremely volatile
- Retail customers own inadequate knowledge of crypto assets.
- Lacking legitimate reasons for retail consumers to invest in digital assets.
United Kingdom cryptocurrency laws
Since January 10, 2020, FCA has established an Anti-Money Laundering and Countering Terrorist Financing (AML/CTF) supervisor for supervising businesses carrying out various cryptocurrency trading.
FCA has published a guideline for crypto assets and all the following entities should adhere to these guidelines:
- Crypto and Bitcoin ATMs
- Tx of cryptocurrency
- VASPs and P2P exchanges
- Insurance of new coins
- Publication of open-source software regarding coins, protocol, etc.
In addition, the UK requires Know-your-customer (KYC) and Customer due diligence (CDD) checks for all customer crypto native businesses. Virtual assets service providers also keep detailed records of the beneficiaries. In the UK, cryptocurrency taxes differ for individuals and businesses. Individuals have to pay against the gain and losses that are taxed under capital gains and other activities attempted by the individual such as mining, staking, and more.
Businesses are also liable to pay capital gains, income tax, stamp duty, and value-added tax. In order to operate in the UK, crypto exchanges must register with FCA or apply for an e-money license.
Money Laundering and cryptocurrencies in the UK
In the United Kingdom, the FCA must be authorized to operate exchanges that initiate trading crypto assets. Businesses authorized by FCA must submit with FCA’s crypto assets. In the UK investors can easily purchase the crypto asset products like Bitcoin. It is the most important factor to buy and sell cryptocurrencies is to ensure that these crypto assets will not be used to finance terrorism and money laundering.
Crypto businesses have to register with FCA guidelines. The companies are applying for registration with FCA have taken their responsibilities to anti-money laundering in the firm.
Cryptocurrency taxes in the UK
Income tax will be applied to those who are engaged with commercial earnings by crypto assets. HMRC has developed two different tax systems for individuals as well as businesses trading crypto assets. In 2018 HMRC declared there are three types of crypto assets: utility token, security token, and exchange token.
In 2019, HMRC issued a policy paper and later stated that it will address the processing of utility and security tokens as follows:
- The value of the exchange token will be based on their use as a medium of exchange or investment.
- Exchange tokens are crypto assets, a new type of imperceptible asset that will be intendant to be used as a medium of payment.
- Security tokens can be beneficial for the owners such as a business’s debt form business or can be a dividend in the business.
- Utility tokens allow the crypto holder to access specific products or services on a platform.
How will regulation after cryptocurrency?
Crypto regulation can be a controversial topic but experts state that investors should welcome it. For beginners, more regulations will help in more stability in the volatile crypto market. Regulations are platforms that provide monitoring, staking, and hosting of the crypto market. These secure investors so the regulations are good for the investors.
But many crypto enthusiasts state that it would hinder innovation and can go against the spirit of cryptocurrency. That emphasizes decentralization at its core.
New regulations also have some potential to secure long-term investors and also provide guidance to aloe companies to innovate in the cryptocurrency economy.
Is it illegal to buy cryptocurrencies in the UK?
Ans: It is legal to buy cryptocurrencies in the UK. Buying and selling cryptocurrencies is a risky form of trading. It is lead to worry for some investors while trading the crypto exchange. You can purchase cryptocurrencies like Bitcoin or other cryptos in the UK from crypto exchanges like Coinbase.
Are cryptocurrency exchanges regulated in the UK?
Ans: Crypto exchanges are regulated in the UK by the FCA( Financial Conduct Authority). FCA banned the sale of crypto derivatives as well as Exchange traded notes to retail investors. Coinbase payments is an authorized electronic money institution regulated by FCA.
Which are UK banks allowing you to buy cryptocurrency?
Ans: The best UK crypto-friendly banks for UK investors are: Monzo, Nuri, Royal Bank of Scottland (RBS) & NatWest, and Nationwide.
The future of digital assets depends on the ability to establish a trust mechanism. Having legal certainty with more strict regulations and laws helps the crypto industry healthily and virtual currencies can become an appropriate choice investment for investors. As cryptocurrencies are decentralized in nature, it is a certainly sensitive issue for the Government. But regulating virtual currencies is an unavoidable subject globally. Having clear regulations about digital assets will help in the healthier development of virtual currencies in the UK. Regulators having mindset struggling change would be constructive to the development of the digital assets and