Crypto License in the UK
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:
- Exchange-traded tokens (“cryptocurrencies”), such as Bitcoin and Ether, that use distributed ledger technology (DLT). They are not issued or backed by a central bank or other central authority and do not provide the types of rights or access typical of securities or service tokens. They are used as a medium of exchange or for investment.
- Security tokens are “specified investments” under the Financial Services and Markets Act (2000). They can provide rights such as ownership, a return of a certain amount of money, or a share in future profits. Security tokens can also be treated as securities or financial instruments under the EU’s Markets in Financial Instruments Directive II (MiFID II).
- Utility tokens can be exchanged for access to a specific product or service.
In its Policy Guidance (2019), the FCA added another type of token, electronic money (e-money) tokens, which meet the definition of e-money as set out in the Electronic Money Regulations(2018).
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.
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Advantages of Obtaining a Crypto License in the UK
Obtaining a crypto license in the UK has several advantages:
- The UK offers competitive corporate tax rates (the current rate is 19%). The UK treats cryptocurrencies as property rather than currency and applies a capital gains tax on cryptocurrency assets. This means that capital gains tax can be applied to the realization of cryptocurrency assets, instead of being taxed as currency gains. In addition, there is no VAT on the sale and purchase of cryptocurrencies.
- The process of registering a cryptocurrency company in the UK is relatively simple and transparent. You can choose between different forms of organization, such as a limited legal entity or an innovative company. This allows you to choose the structure that best suits your business needs.
- Access to the European market. Although the UK has officially left the European Union, it still maintains close ties with the EU. Obtaining a cryptocurrency license in the UK can give you the benefit of passporting treatment, allowing you to operate in the European Economic Area without additional licenses in each EU member state.
- The UK has a thriving ecosystem for fintech and blockchain startups, with many incubators, gas pedals, and venture capital funds focused on supporting innovative cryptocurrency companies. This ecosystem provides opportunities for networking, mentorship, and potential collaborations.
- Doing business in the UK offers the advantage of using English as the primary language of communication, making it easier to interact with international partners and customers. In addition, the UK operates under a common law system known for its stability and predictability.
Requirements for a crypto license in the UK
To obtain a cryptocurrency license in the UK, a company must meet certain requirements:
- Organization registration – the company must be registered in the UK.
- Having an office – the company must have an office located in the UK.
- Maintenance of records – the licensee must maintain records of all transactions performed by the company at the place of business.
- Appointment of a resident director – the applicant must employ a resident director who must have the necessary experience in business management and meet educational and professional requirements.
- Share capital – there are currently no minimum share capital requirements for obtaining a cryptocurrency license.
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:
- Create and implement a policy that defines the approach to AML/CFT compliance. The policy should establish procedures and controls to prevent money laundering and terrorist financing.
- Develop and implement a KYC procedure that verifies the identity and identification of customers.
- Appoint a responsible person who will be responsible for AML/CFT compliance. This person will oversee the implementation of the policy, provide employee training and coordinate AML/CFT compliance activities.
- Appoint an internal audit department to review and monitor the company’s compliance with AML/CFT requirements.
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.
Crypto license lawyers in the UK
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Overview of Crypto Regulation in the UK
| Project time frames | 9 to 12 months |
| State fee for application | From 2350 |
| Required share capital | 0 GBP |
| Corporate income tax | 19% for companies with profits below 50 000 GBP and 25% for companies with profits above 250 000 GBP. For profits in between those profit amounts tax rate can gradually rise from 19% to 25% in proportion with the profits |
| Annual supervision fee | 0 GBP |
| Local staff member | Not required, recomended |
| Physical office | Required |
| Accounting audit | Required |
| Sustainability | Sustainable |
| Bank account options | European EMIs |
Cryptocurrency Regulations in the United Kingdom (UK)
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:
- crypto trading platform – cryptocurrency exchange;
- managing automated cryptocurrency exchange processes;
- conducting initial coin offerings (Initial Coin Offering, ICO);
- provision of crypto wallets – storage facilities for cryptocurrency;
- provision of crypto bank and terminal services.
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.
Registration of a crypto company in the UK
To successfully register a crypto business, the following information and documents must be provided to the FCA:
- Directors’ and shareholders’ resumes confirm their experience, qualifications, and competence.
- A program of operations that describes the specific crypto asset activities the company is engaged in.
- A detailed business plan that details consumer protection and measures to prevent money laundering and terrorist financing.
- A risk management policy that describes the measures taken by the company to ensure the safety of customer funds.
- A marketing plan describing customers and sales channels.
- Company structure, including corporate structure and information on outsourcing arrangements, if such agreements apply.
- Providing information on the key IT systems used by the company, including IT security policies and procedures.
- Providing details of the AML/CFT system and risk assessment associated with the proposed operations, including training materials for staff.
- Providing all public keys/addresses of crypto asset wallets used by the company in its operations.
- Providing information on the agreements and customer onboarding process.
- Providing documentation to support customer due diligence and enhanced due diligence procedures that comply with legal requirements.
- Providing information on transaction monitoring procedures.
- Providing information on record keeping and registration procedures.
- Money laundering reporting.
- Providing beneficial owner forms for company shareholders.
The registration process itself takes place in several steps:
- The applicant must complete an application form and submit it to the FCA.
- Payment of the registration fee:
- £2,000 (about US$2,599) if the company’s revenue is less than £250,000 (about US$324770);
- £10,000 (about US$12,990) if the company’s revenue exceeds £250,000.
- The FCA appoints a supervisor who will be responsible for assessing the request of the applicant.
- At the request of the supervisor, the applicant must provide additional information or evidence that may be necessary for the application to be considered.
- The FCA reviews the application using various databases and information held by other regulators in the UK and overseas.
- Assessing compliance with minimum threshold conditions, which depend on the complexity of the business.
- If the application is successful, the FCA issues authorization for the regulated activity.
- The FCA provides written confirmation of the decision, including an indication of the type of regulated activity authorized, the start date, and any restrictions associated with the authorization.
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.
Taxation of cryptocurrencies in the UK
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:
- HMRC treats cryptocurrencies as assets rather than currency. The specific tax treatment depends on cryptocurrency-related activities such as investing, mining, or trading.
- Capital Gains Tax (CGT). If you dispose of cryptocurrencies, such as selling or exchanging them for fiat currency or other assets, you may be liable to pay CGT. Taxable income is calculated based on the difference between the acquisition cost and the realization cost. An annual CGT exemption threshold applies and individuals are responsible for reporting and paying the tax.
- Income Tax (IT). If you receive cryptocurrency as payment for goods or services, it is treated as taxable income. The value of the cryptocurrency received is determined by the market value at the time of receipt.
- Cryptocurrency mining is treated as a taxable activity. The value of the cryptocurrency mined is taxable income based on its market value at the time of receipt.
- The sale and purchase of cryptocurrencies are generally exempt from value-added tax (VAT). However, other transactions, such as exchanging cryptocurrency for goods or services, may be subject to VAT.
- A deduction tax on the purchase of shares, land, or real estate may also apply in certain cases if the purchase is made using cryptocurrencies.
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.
FAQ on obtaining a crypto license in the UK
Is crypto regulated in the UK?
Yes, cryptocurrency transactions are regulated by the UK’s Financial Conduct Authority (FCA). The FCA is the regulatory body responsible for the supervision and control of various financial services, including cryptocurrency businesses and transactions. The FCA’s regulatory framework aims to ensure consumer protection, market integrity, and the prevention of financial crimes such as money laundering and terrorist financing.
How do I get a crypto license 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.
How much is a crypto license 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:
- £2,000 for companies with annual revenues of less than £250,000.
- £10,000 for companies with annual revenue over £250,000.
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.
How long is a cryptocurrency license issued in the UK?
As there is no official licensing of cryptocurrency activity in the UK, it is technically not a license, but rather a permit, and it has no expiration date. However, it may be subject to ongoing regulatory requirements, compliance obligations, and periodic reviews by regulators such as the FCA. Failure to meet these requirements or changes in regulatory conditions may result in the revocation or modification of the license.
What difficulties can arise when obtaining a crypto license in the UK?
Several challenges can arise when obtaining a crypto license in the UK. Firstly, regulatory requirements such as AML/CFT, risk management policies, and customer due diligence procedures must be strictly adhered to, which can be a complex and time-consuming process. Second, extensive documentation is required, including business plans, financial statements, and key employee information, which can be a challenge for companies with limited resources. Increased regulatory scrutiny and the time it takes to process an application can also create challenges in the process.
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