Striving to minimize cryptocurrency regulation uk risks for private investors, Germany has implemented strict rules on advertising and disclosure requirements to prevent scams and fraudulent schemes. Nevertheless, the highly administrative nature of the German regulatory system may impede swift responses to emerging challenges. Germany addresses AML and CFT concerns through its strict licensing process for crypto-asset businesses.

UK Enacts Legislation to Bring Cryptoassets Within Scope of Existing Financial Services Regulatory Regime

Only a few cryptoasset activities have needed authorisation under the Financial Services and Markets Act 2000 (FSMA). This applies to cryptoassets that https://www.xcritical.com/ act like traditional investments falling under the definition of ‘specified investments’. These guidelines come alongside ones from the FCA already applying from 1 September for UK virtual asset services providers to possibly withhold transfers to and from jurisdictions not following the UN’s FATF Travel Rule. 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. The offence of market abuse would apply to all persons committing market abuse on a cryptoasset that is requested to be admitted on a UK trading venue. The Government plans to expand the list of “specified investments” in Part III of the Financial Services and Markets 2000 (Regulated Activities) Order 2001 (“RAO”) to include cryptoassets.

Understanding EU’s MiCA Regulation for Crypto

Simply put, the cost of lawyers, advisors, and consultants pales compared to having to undergo an enforcement action. But both will be considered in any go-to-market strategy for a company that works in blockchain and cryptoassets. To register a cryptocurrency business in the UK under the FCA’s requirements, an application for a crypto license must be submitted.

Cryptocurrency Regulations in The United Kingdom (UK)

The report outlines significant steps taken to monitor and enforce compliance across various sectors, including the burgeoning crypto industry. The UK regulates cryptocurrencies under the Financial Conduct Authority (FCA), which requires certain crypto businesses to register with them and comply with AML requirements. “Grant Thornton” refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. Dr Paolo Tasca is professor of emerging technology at the University College London and director of the UK Centre for Blockchain Technologies and the DLT Science Foundation.

Gofaizen & Sherle offers its expert support in the process of registering and obtaining licenses to operate cryptocurrencies in the UK and other jurisdictions. The same regulatory uncertainty surrounding crypto and digital assets exists in the U.S., but American legislators have been less amenable to crypto regulation. The U.S. Securities and Exchange Commission has classified crypto and digital assets as securities rather than commodities and has taken action against multiple crypto exchanges, alleging they are operating as unregistered securities brokers. The UK has been a leader in financial innovation—the country has been an early adopter of open banking concepts like instant payments.

The FCA ensures that cryptoasset firms have robust anti-money laundering (AML) and counter terrorist financing procedures in place. Cryptocurrency or cryptoassets, also known as ‘crypto’, is a store of value which can be transferred or exchanged digitally. Once regarded as a niche asset, interest in cryptocurrency has gained widespread interest in the last few years as a form of investment. Last year, the UK Prime Minister, Rishi Sunak, who was at the time the UK finance minister, spoke of making Britain a “global hub for cryptoasset technology” which highlights the potential of cryptocurrency. The implementation phase for adoption of MiCA is set to end in December 2024, with a subsequent 18-month transitional period that ends in July 2026.

Germany has adopted an absolutely proactive approach in regulating cryptocurrencies and passed law in 2020 that mandates all cryptocurrency exchanges taking place in Germany acquire a license from the Federal Financial Supervisory Authority (BaFin) (Armata 2023). On the other hand, the UK government has no plans to design a special set of regulations for crypto-assets. Rather, it stated that it would regulate some crypto-assets by classifying them as “specified investments”, which are already regulated assets according to current regulations (Ross and Cavill 2023). In its consultation, the UK stated that it would be guided by “same risk, same regulatory outcome” principle in the course of establishing the regulatory framework for crypto-assets (HM Treasury 2023). Whereas the principle-based approach is applauded for fostering innovation and technology, a technology-neutral approach may pose barriers for entrepreneurs. Crypto assets are a dynamic and innovative sector of the financial industry, offering new opportunities and challenges for clients and the legal profession.

The sector may also give rise to various legal disputes and enforcement issues, as clients may encounter conflicts, breaches or liabilities when engaging in crypto assets activities in the UK. For instance, clients may face contractual disputes over the terms, performance, and enforcement of crypto assets transactions or agreements, especially when they involve smart contracts, which may be self-executing, immutable and irreversible. Clients may also face regulatory disputes over the compliance, supervision and sanctioning of crypto assets activities, especially when they involve cross-border or multi-jurisdictional aspects. Clients may also face civil or criminal disputes over the ownership, recovery or compensation of crypto assets, especially when they involve fraud, theft, hacking or loss of access. These legal disputes and enforcement issues may pose significant challenges and costs for clients and lawyers who need to resolve them in a timely and effective manner.

This most recent HMT publication provides an update to these plans and is referred to as Phase 1 of the overall crypto legislative framework, as discussed above. As in the scope of the UK MLRs (Money Laundering Regulation, Section 14A), the related activities of custody (i.e. safeguarding and safeguarding and administration) will also include the arranging (or introducing) for such activities. Crypto regulations are likely to significantly evolve over the coming years, potentially exceeding the current jurisdiction of the Financial Conduct Authority.

• The research identifies that the UK’s flexible approach has attracted a flourishing crypto-asset ecosystem, while Germany’s conservative stance has offered greater investor confidence.
• Overall, the new UK rules, in their final form, have been welcomed by participants in the cryptoasset industry in light of their potential to foster responsible innovation against the background of legal clarity.
• 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.
• Gherson’s white-collar crime and regulatory team are able to provide advice and assistance with AML, regulatory and sanctions compliance, including in situations involving cryptoassets.
• Other important bodies of UK crypto regulations include the HM Treasury and the Bank of England.
• ✅New UK government regulations mandate crypto companies to disclose trading risks and advertise responsibly.

The Financial Services and Markets Act 2023 (FSM Act), introduced, amongst other things, powers for HM Treasury (HMT) to bring stablecoins used as a means of payment and other digital settlement assets (DSA) within the scope of regulation. Existing money laundering-registered firms will be required to be authorized and an existing Part 4A FSMA-authorized firm (Financial Services and Markets Act 2000) will need to submit a Variation of Permission (VoP). The FATF remains the global regulator for AML and CTF policies, and the FCA has consistently aligned its crypto regulations with FATF guidelines. One key rule is the FATF’s Travel Rule, which requires crypto firms to share information about transactions and is increasingly being adopted worldwide. The decentralized nature of these platforms can make traditional regulatory approaches ineffective, prompting the need for new frameworks to govern lending, staking, and liquidity provision.

Recovering assets in those circumstances has involved lengthy and costly proceedings seeking to prove criminal conduct, usually in the form of fraud by false misrepresentation by the vendor, with (attempted) recovery following criminal conviction. Integrating with a KYC solution provider is the most assured method of obtaining an FCA crypto registration, and the regulatory authority strongly advises using these kinds of technologies. Able to automate the client acquisition process, crypto KYC services greatly reduce the cost spent on customer onboarding, reduce regulatory probing, and generate a heightened sense of customer security with users. Such a move would mimic the UAE and Dubai and likely contribute to, as it has done in Dubai, more comprehensive legislation. The Virtual Asset Regulatory Authority (VARA) was created in the independent state of Dubai and given sole authority to regulate digital assets in the Emirate.

It has done so through amending the definition of “investment” for the purposes of financial promotions and regulated activity so that it now includes cryptoassets. In order to preserve flexibility in this rapidly developing area, HM Treasury has been granted the power to amend this definition. 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. 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.

Crypto assets may also be vulnerable to cyberattacks, system failures, or human errors, which may compromise the security and integrity of the crypto assets and the underlying platforms. Second, such person will need to determine whether its activities fall under the restrictions on financial promotion and if so, whether it may utilise an exemption under the amended FPO. This will entail, among other steps, adopting stricter procedures on communications in respect of marketing cryptoassets. Promotion of cryptoassets will now fall under the regulatory scope of restrictions on financial promotion. The latest plans, announced in February 2023, include strengthening new crypto regulations UK and rules for crypto trading platforms. The FATF Travel Rule, or FATF Recommendation 16, is designed to combat money laundering and terrorism financing.