The UK and its protectorates are attractive environments for innovative digital businesses, including mining, cryptocurrency exchanges, and e-money transactions. They are popular locations for blockchain startups and ICOs. Gofaizen & Sherle offers its expert support in the process of registering and obtaining licenses to operate cryptocurrencies in the UK and other jurisdictions.
Today, the UK is considered one of the most attractive jurisdictions for establishing cryptocurrency companies, even though at the moment cryptocurrency business is not subject to full state licensing.
Officially, cryptocurrency exchanges in the UK have not been subject to government licensing, and no cryptocurrency license is required in the country. However, a few years ago, the Financial Conduct Authority (FCA) established Innovation Hub, a platform that provides advisory legal support to crypto market participants and interested parties. Registration on this platform is not mandatory, which has created some uncertainty regarding cryptocurrency licensing in the UK.
Also, there is currently no universal global definition of a crypto asset in the UK. The UK Cryptoasset Taskforce, which includes the FCA, Her Majesty`'s Treasury (HMT), and the Bank of England (BoE), has defined crypto assets as "digital representations of value or contractual rights that are cryptographically protected, use distributed ledger technology and are capable of being transferred, stored or traded electronically." The Working Group identified three main types of crypto assets:
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In 2021, Chancellor of the Exchequer Rishi Sunak instructed the Bank of England to organize a research paper on the introduction of a potential central bank digital currency (CBDC) or national cryptocurrency. It was envisioned that a new digital version of the pound sterling, informally dubbed "Britcoin," would allow businesses and consumers to hold accounts directly with the Bank of England, increase access to central bank funds, speed up domestic and international payments, and reduce risks to financial stability. It is important to note that, in theory, CBDC will not replace cash or existing bank accounts. However, to date, the government and the Bank of England have not made a formal decision to implement CBDC in the United Kingdom.
In April 2022, the Government committed to introducing a new regulatory regime for crypto assets that considers the risks and associated opportunities. As a result of this work, a consultation paper was published on February 1, 2023. It sets out proposals for the future regulatory regime, which is the next stage in the Government's approach to crypto asset regulation. These proposals build on previous proposals from Her Majesty's Treasury which focused on stablecoins and the financial development of cryptoassets. These proposals aim to achieve ambitions to establish the UK as a leader in cryptoasset technology and innovation in the financial sector, and to create an enabling environment for cryptoasset service providers to operate and grow in the UK while managing potential risks to consumers and financial stability.
Obtaining a crypto license in the UK has several advantages:
To obtain a cryptocurrency license in the UK, a company must meet certain requirements:
Also, to launch a crypto business, it is not only necessary to comply with AML/CFT regulations, but also to develop and implement mechanisms internally to fulfill AML/CFT policies. This includes the following steps:
It is important to note that these requirements are subject to change and it is recommended that you contact Gofaizen & Sherle's cryptocurrency license lawyers in the UK for details and specific requirements at this time.
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UK crypto-asset legislation is partially compliant with European Union (EU) regulations, as the country adopted the anti-money laundering (AML) and counter-terrorist financing (CFT) requirements set out in the EU's Fifth and Sixth Directives (5AMLD and 6AMLD) before leaving the EU. UK cryptocurrency companies are required to comply with the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (the MLRs), which sets out the private sector's responsibilities to combat money laundering risks. The Regulations provide requirements for customer due diligence measures that are monitored and enforced by the FCA to prevent money laundering and the financing of illegal activity through cryptocurrency business. The process for verifying a customer's identity and financial activities is set out in the Know Your Customer (KYC) guidance.
Under current legislation, the provision of crypto services in the UK requires registration with the FCA. This registration process is officially known as the FCA AML/CTF crypto asset registration regime. Although the term "license" itself is not used, registration can be considered a license, as without it, it is prohibited to provide certain crypto services in the UK. This step is mandatory if the company plans to carry out at least one of the following activities:
In addition to the requirements of UK financial legislation, the sale or offering of cryptocurrency and related services is also subject to the Consumer Rights Act 2015 and the Consumer Protection from Unfair Trading Regulations 2008. These apply to consumers (individuals who purchase goods or services for personal use rather than as part of their business activities) and provide them with legal rights and redress mechanisms against providers of goods, services, and digital content. These laws also place additional restrictions on the types of contractual terms that can be applied to consumers.
To successfully register a crypto business, the following information and documents must be provided to the FCA:
The registration process itself takes place in several steps:
Once the authorization process is complete, the Financial Services Register will be automatically updated.
When applying for a cryptocurrency license in the UK, it is possible to withdraw an application during the authorization process, in which case the application fee is not refundable. Applicants usually withdraw from the process if they cannot provide all the required information, or do not meet the deadlines.
If an application is rejected, the FCA will explain the reason for its decision and refund the application fee, after which a resubmission of the application is possible.
The FCA has the right to suspend or cancel the registration of a cryptocurrency company at any time after the completion of the registration process if the company does not meet the requirements.
In addition to the registration fee, authorized companies are also required to pay a periodic fee, which is calculated using a specific formula that takes into account the application fee, the company`'s valuation, and the number of calendar months. The amount of the fee will be determined by the FCA on a case-by-case basis. In the first year, authorized companies are only required to pay a portion of the fee based on the number of months remaining in the payment year.
Although the UK does not yet have a detailed regulatory framework for cryptocurrencies, Her Majesty's Revenue and Customs (HMRC), the UK's tax authority, has already released a Guide to Crypto Assets, which explains all the tax obligations associated with the use of cryptocurrency under existing legislation.
Here are a few key points regarding the taxation of cryptocurrencies in the UK:
It is important to note that tax rules and guidance can change over time and it is recommended that you consult a Gofaizen & Sherle tax professional for the most up-to-date and accurate information on the taxation of cryptocurrencies in the UK.
For those who want to engage in cryptocurrency activities in connection with a business in the UK, mandatory registration with the Financial Conduct Authority (FCA) is required, but it is not formally called a license.
To register a cryptocurrency business in the UK under the FCA's requirements, an application for a crypto license must be submitted. Applicants must complete and submit relevant documents and information, including a business plan, risk management policy, and key employee information, and pay an application fee. Once the application is processed, the FCA will conduct an assessment and decide whether to issue a license allowing cryptocurrency activities in the UK.
The cost of obtaining a crypto license in the UK, in particular the registration fee, depends on the annual revenue of the company applying for a license. As of today, the pricing structure is as follows:
It is important to note that these rates are subject to change and it is recommended that you contact the FCA or relevant sources for the most up-to-date information on the cost of obtaining a crypto license in the UK.