UK Crypto Compliance Playbook Available Now

Financial institutions, digital banks and payment service providers involved in cryptocurrency activities in the United Kingdom face substantial financial and reputational risk if they don’t keep up with new compliance regulations. 

Failure to comply with current and new rules can seriously affect enterprises; from financial fines and legal action to judicially enforced cease-and-desist orders that forbid activities. 

Many times, it involves imprisoning directly and indirectly responsible parties. 

Given that the newly appointed prime minister Rishi Sunak is a supporter of cryptocurrency and blockchain technology, the cryptocurrency industry in the UK is anticipated to thrive. 

In this article, we analyze the UK’s stance on the cryptocurrency business, the definition of the crypto asset class and the regulations governing them in the UK region. 

But just before we get started…

Blockchain Intelligence Group created a comprehensive guide for compliance, analysts and law enforcement to navigate the current cryptocurrency regulations in the UK, with the aim of simplifying compliance and protecting enterprises and customer assets. 

Download your free copy of the Cryptocurrency Compliance Playbook: UK Edition here.

Now, let’s get into it.

UK Stance on Crypto is Promising

London has long been known for pioneering specialized regulatory frameworks, legal protections and friendly environments to foster innovation. 

On October 27, 2022, Andrew Griffith, who was re-appointed as City Minister by Britain’s new Prime Minister Rishi Sunak, proposed the modification to the financial services and markets law, which parliament has begun to approve.

The bill grants the Financial Conduct Authority (FCA) authority over stablecoins, whereas the proposal broadens the scope to include promotions for all crypto assets.

By approving this bill, Britain would be more on pace with the European Union’s markets for the regulation of crypto assets, which is being finalized and is regarded as the first complete set of regulations for the crypto sector in the developed markets.

The idea marks another wave of acceptance for the UK’s Bitcoin, cryptocurrency and digital asset industry. Nevertheless, UK lawmakers have crypto and crypto firms on the radar, says Lisa Cameron of the UK parliament in a positive statement to cointelegraph.com.

Notably, the FCA has previously mentioned that it will bring crypto assets into the scope of the new rules on financial promotions for high-risk investments and firms approving financial promotions coming into effect between December 2022 and February 2023.

Evolution of Crypto Definition and Regulations in the UK

In 2018, the UK Cryptoassets Taskforce, comprised of the Exchequer, FCA and Bank of England (BoE), jointly outlined the UK’s policy and regulatory approach toward regulating crypto assets in a policy paper and report. 

This move set the path forward for crypto assets in the UK concerning regulations.

In 2020, the FCA expanded its Anti-Money Laundering and Countering Terrorist Financing (AML/CTF) supervision to include firms carrying out specific cryptocurrency activities.

Accordingly, UK-based crypto businesses must comply with the Money Laundering Regulations (MLRs) and register with FCA.

Crypto asset classification in the UK

The UK upholds the final guidance of the FCA from 2019 alongside the Taskforce’s definition to classify crypto assets. The Taskforce describes crypto assets as: “cryptographically secured digital representations of value or contractual rights that uses some type of distributed ledger technology and can be transferred, stored or traded electronically”.

In the UK, the three major categories of crypto assets currently are:

• e-Money tokens are tokens that store value and meet the definition of electronic money in the Electronic Money Regulations 2011 (EMRs).
• Security tokens are described as tokens that provide rights and obligations. Debts, options, futures and shares are all instances of security tokens. 
• Unregulated tokens are crypto assets that are neither e-Money nor security tokens however, may be exchange or utility tokens. 

Who is subject to the regulations?

According to current regulations, the FCA requires businesses that aim to operate in the UK and offer crypto services to register with it. The FCA is in charge of approving and overseeing business activities with a focus on consumer protection, market integrity and fair competition.

Do I need to register with the FCA for carrying on cryptoasset activity? You must register with the FCA if your business identifies with one or more of the below conditions:

• An issuer of a crypto asset class
• a crypto asset exchange
• A crypto wallet service provider
• a crypto payment systems operator

More detailed information on the definition of cryptoassets in the UK and the business activities mandating registration with the FCA is available inside the playbook.

Download your free copy of the Cryptocurrency Compliance Playbook: UK Edition here. 

Do you operate in the US? Similarly, we have a dedicated playbook for US compliance programs and best practices to help you get a handle on US regulatory requirements pertaining to cryptocurrency and digital assets.
Download the US edition for free here.