Stablecoins are a form of cryptoasset that are typically pegged to a fiat currency such as the dollar and are intended to maintain a stable value. With appropriate regulation, they could provide a more efficient means of payment and widen consumer choice. It’s my ambition to make the UK a global hub for cryptoasset technology, and the measures we’ve outlined today will help to ensure firms can invest, innovate and scale up in this country. Fluctuations in the market make it harder for companies to accept cryptoassets as payment for goods and services; the price of a cryptoasset can vary considerably, even hourly. The cryptoasset ecosystem also remains a relatively new phenomenon; despite their relative normalisation, cryptoassets are still not a widely accepted payment method.

cryptocurrency regulation in the UK

A person in control of a data object can exclude others from it, use it, transfer it, and identify themselves as the person able to carry out these things. As with the existing legal concept of possession, however, there is no requirement of intention. The Commission acknowledges that this concept might not be able to deal with complex legal cryptocurrency regulation in the UK mechanisms and arrangements, such as custody arrangements and collateral arrangements. “Having a solid a regulatory framework, having enforcement capabilities, is really important for consumer confidence,” Mr Guthrie said. The so-called crypto winter has raised questions about whether the industry can ever be effectively regulated.

cryptocurrency regulation in the UK

The announcement will focus in particular on stablecoins, digital assets that derive their value from existing currencies like the U.S. dollar. Confidence in the sector may be boosted if all exchanges have to follow set standards and conduct checks on cryptos that they sell on their platforms and ensure consumers understand the risks. The FCA will only register firms where it is confident that processes are in place to identify criminal or terrorist financing activity and properly follow money laundering regulations. The draft bill already included measures to extend existing regulations to payments-focused stablecoins, which are cryptocurrencies pegged to the value of other assets like the U.S. dollar or gold. The consultation sets out the landscape for cryptoassets and their current status in UK regulation, outlines the government’s proposed policy approach and sets out specific proposals with respect to cryptoassets used for payments purposes.

HMRC has published some guidance relating to the taxation of cryptoassets, focusing on the taxation of exchange tokens. It is important to note that HMRC is not bound by its published guidance, but it is useful to see how it might approach a case that will be decided on its facts. In his Mansion House speech in July 2021, the Chancellor set out his vision for the future of the financial services sector, which included a plan to ensure that the UK remains at the forefront of technology and innovation.

The proposals will see transfer of fund regulations (TFR) extended to all VASPs in the EU, and will mandate the collection of information about senders and recipients of cryptocurrency transfers. All crypto exchanges or businesses operating in the UK are supposed to have been registered with the FCA for anti-money laundering regulations. Other types of cryptoassets include decentralised finance platforms that use blockchain technology to provide services such as crypto-backed loans.

In 2021, the Biden administration turned its attention to stablecoins, with the intention to address the danger of the tokens’ growth in value. Later that year, the President’s Working Group on Financial Markets released a series of recommendations that included a need for new legislation. Congress also debated the status of cryptocurrency service providers in 2021, with new rules included in the Biden administration’s infrastructure bill. Under the new rules, cryptocurrency exchanges are regarded as brokers and must comply with the relevant AML/CFT reporting and record-keeping obligations.

In the future, however, it is likely that the UK will diverge from EU cryptocurrency regulations to some degree. In January 2022, the government followed up on those efforts with strengthened legislation to address ‘misleading cryptoasset promotions’ and to bring cryptocurrency adverts ‘into line with other financial advertising’. The Task Force has also explored possibilities for the regulation of stablecoins which are currently banned by the FCA. It is likely that the UK’s cryptocurrency regulations will remain largely consistent with the EU in the short term but diverge from the bloc to some degree in the future.

The Advertising Standards Authority (ASA) also monitors social media posts, webpages and ads to see if consumers are being misled or if risks aren’t being made clear. The FCA has said that both exchange and utility tokens are currently outside of its regulatory perimeter. Customers of regulated firms benefit from Financial Services Compensation Scheme (FSCS) protection for their real or fiat currency. Crypto regulations would likely focus on stablecoins, something the government has been consulting on since the Treasury’s March 2020 budget prioritized the issue.

From October, new FCA rules will affect how crypto companies can market themselves to UK customers. New UK crypto investors will have to wait 24 hours before completing their transaction following a Financial Conduct Authority (FCA) crackdown. The process of generating digital coins via banks of powerful computers, called mining, is also highly energy intensive. Recent research suggests Bitcoin now generates carbon emissions comparable to the country of Greece. Sir Jon Cunliffe told the BBC that if the value of cryptocurrencies fell sharply, it could have a knock-on effect. “But we think that by making this country a hospitable place for crypto we can attract investment [and] generate swathes of new jobs.”

Finally, users can trade their cryptoassets using decentralised exchanges, which facilitate cryptoasset exchange through smart contracts. There are no AML/KYC requirements to use decentralised exchanges, making them vulnerable to abuse by criminals. Individuals can also purchase cryptoassets from online fiat on-ramps using credit cards, debit cards, or through a bank transfer.

cryptocurrency regulation in the UK

The creation of a cryptoasset specific civil forfeiture power will mitigate the risk posed by those that cannot be prosecuted but use their funds to further criminality or for terrorist purposes. We must ensure that law enforcement agencies have the right legislative framework in place to recover criminals’ cryptoassets to ensure crime does not pay and prevent those assets being used to fund further criminality and terrorist activities. They are broadly subject to capital gains tax across the region while transactions in Brazil, Argentina, and Chile are also subject to income tax in some contexts. In June 2021, China banned all domestic cryptocurrency mining, and followed-up by outlawing cryptocurrencies outright in September 2021. The new regulation effectively banned the use of all cryptocurrency exchanges (foreign and domestic) and prompted a major token sell-off.

  • From January 10, 2020, the FCA has been established as the Anti Money Laundering and Countering Terrorist Financing (AML/CTF) supervisor for businesses carrying out various cryptocurrency ventures.
  • The FCA guidelines mentioned that the entities involved in crypto-related activities which come under existing financial regulations for derivatives require authorization.
  • If the individual does not have other means to satisfy that debt, any seized cryptoassets can be realised to satisfy that order and be paid into the Consolidated Fund.
  • Although there are no specific legislative steps on the radar, we expect more crypto legislation to be forthcoming in Luxembourg especially now that the EU’s 5AMLD and 6AMLD are in effect.

In 2017, the GFSC issued a statement on the unregulated use of ICOs and suggested it will monitor their ongoing use within the DLT Framework. Similarly, the commission’s Innovate and Create Team has been established to help businesses innovate new products for the crypto-economy. In 2021, Gibraltar convened a Market Integrity working group to further define appropriate market standards for cryptocurrency exchanges in coordination with standards set by other jurisdictions such as the UK and the EU. With the PSA in effect, crypto businesses in Singapore are largely in alignment with FATF’s most recent recommendations. However, MAS is likely to follow up with additional regulations in an effort to further align its position.

To ensure compliance, firms should read the Guidance alongside the FCA’s Perimeter Guidance manual (PERG). If a firm acts within these guidelines, it will be treated as having complied with the relevant rule or requirement, but this is not binding on courts; therefore, judgments on whether a cryptoasset falls within the regulatory regime will be made on a case-by-case basis. Matthew Long, the director of digital assets at the FCA and a member of Iosco’s crypto taskforce, said he acknowledged the Treasury committee’s concerns, but international coordination was key to addressing many related risks.

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