KYC can provide businesses with personal identifying information such as customer IDs, passports, driver’s licenses, and photos. If they catch something that does not match, they can proceed with further verification ways or chose not to work with a suspicious customer. Reuters, the news and media division of Thomson Reuters, is the world’s largest multimedia news provider, reaching billions of people worldwide every day. Reuters provides business, financial, national and international news to professionals via desktop terminals, the world’s media organizations, industry events and directly to consumers.
In addition, for those who would like advice on relevant issues, including those who have had issues with the FCA registration process, our specialist regulatory and compliance team can guide individuals and companies through the process. 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. Firms looking to launch cryptoassets, or products connected to cryptoassets, in the UK will need to continuously consider the current UK regulatory landscape. On 1 February 2023, HM Treasury published a long-awaited consultation paper setting out plans for the UK to regulate crypto and protect consumers.
Member firms of the KPMG network of independent firms are affiliated with KPMG International. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. Notably, the expectations are wider than under the Money Laundering Regulations that some crypto native firms have already obtained FCA registration.
What is the FATF Travel Rule threshold for transfer of personal data?
Therefore, UK tax residents, regardless of their domicile status, would be subject to UK income tax or CGT in respect of any non-UK-sourced income and capital gains (arising from the disposal of non-UK-situated cryptoassets), respectively, regardless of whether such income or gains have been remitted to the UK. In June 2023, the OECD published a revised version of CARF.[x] Broadly, CARF contains a suite of due diligence and reporting requirements that applies to entities and individuals dealing with cryptoassets. CARF also contains a Multilateral Competent Authority Agreement on automatic exchange of information (the MCAA) to facilitate the exchange of information between signatories to the MCAA. At the time of writing, the UK has yet to announce a timeline for implementing CARF into domestic legislation. HMRC has published some guidance relating to the taxation of cryptoassets, focusing on the taxation of exchange tokens.
- Both HMT and the FCA have committed to adopt a hardline approach in enforcing the legislation when it takes effect.
- Establishing clarity of the legal structure of decentralised autonomous organisations (DAOs) will be important in helping to determine how regulation could be applied to these structures.
- Existing traditional finance or `tradfi’ firms will be able to expand their permissions to undertake cryptoasset activities.
- The definition of “qualifying cryptoassets” to be covered by the new rules is very broad and captures both more-decentralized systems, such as Bitcoin and Ethereum, as well as more centralized systems with central issuers such as issuers of garden-variety cryptocurrency ICOs.
Iosco said its members, which include the UK’s Financial Conduct Authority (FCA) and the Securities and Exchange Commission in the US, should be protecting investors and ensuring “market integrity” in ways that “are the same as, or consistent with, those that are required in traditional financial markets”. In recent years, cryptocurrencies have evolved from a niche interest to a mainstream financial instrument. They are no longer the exclusive domain of tech-savvy enthusiasts but have gained traction within the broader investment landscape. This has created both opportunities and risks, making the regulation of this rapidly growing market imperative.
Is cryptocurrency legal in the United Kingdom?
Although the UK confirmed in 2020 that crypto assets are property, it has no specific cryptocurrency laws and cryptocurrencies are not considered legal tender. The Government is proposing to apply and adapt existing frameworks for traditional finance custodians under Article 40 of the RAO for cryptoasset custody activities, making suitable modifications to accommodate unique cryptoasses feature, or putting in place new provisions. For traditional finance firms, the hope is that this framework will allow more confidence in the integrity and long-term future of the cryptoasset market. Many traditional finance firms are interested in the use of distributed ledger technology (DLT) in traditional finance markets (i.e. tokenisation) and there may be overlaps in this framework and how the existing framework is adapted for tokenisation (as called out in the custody section of the proposal).
The ministry said it would also regulate stablecoins, a digital currency backed by government-issued currencies for retail payments, and will present legislation in 2024 to give the FCA powers to oversee them. The ministry said the new rules will be brought under market law, rather than exist as a standalone regime.  JMLSG, Current Guidance, JMLSG (n.d.); The Joint Money Laundering Steering Group (JMLSG), Prevention of money laundering/combating terrorist financing – 2020 Revised Version, Guidance for the UK Financial Sector, JMLSG (June 2020). For certain transactions equal or exceeding 1,000 euros, there are some additional requirements. This includes international transfers as well as transactions involving unhosted wallets.
Regarding other key changes, interested parties will be well advised to keep abreast of regulatory updates from HM Treasury and the FCA, given their broad statutory powers to regulate in the cryptoasset space. However, cryptocurrency regulations in the UK are criticized as being very complex, and many other issues need to be addressed.  News Story FCA, FCA becomes AML and CTF supervisor of UK cryptoasset activities, Financial Conduct Authority (October 1, 2020). The government has also announced plans to establish a Cryptoasset Engagement Group to work closely with the industry.
The crypto exchange noted that “the suspension will allow the company to focus its efforts and resources on being able to best meet the regulations outlined by the UK authorities in the future.” Breach of the financial promotion restriction is a criminal offense (with the possibility of unlimited fines and/or imprisonment) and any agreement resulting from such promotion may be unenforceable. Consumers, regardless of where the promoter is based (i.e. also covering firms outside the U.K. targeting U.K. consumers) or what technology is used. Primarily, this will cover and be used to regulate stablecoins which reference their value in relation to fiat currencies (see our alert here). Likewise, with the Customer Due Diligence (CDD) procedures, customers’ risks are determined, and precautions are taken according to these risks.
The classification of cryptoassets is not necessarily determinative of their tax treatment, which will depend on the nature and use of the cryptoasset in question. The United Kingdom’s (“U.K.”) Financial Conduct Authority (“FCA”) new proposed rules in May 2023, following recently enacted secondary legislation, governing the financial promotion of cryptoassets https://www.xcritical.com/ within the country entered into force on Sunday, October 8th, 2023. Financial Services and Markets Act 2023 (the “2023 Act”) in June of 2023, bring cryptoassets fully into the U.K.’s broader financial regulatory regime contained in the U.K. Awareness of and adherence to these new rules is now mandatory for anyone conducting cryptocurrency business in the U.K.
The government published its response to a consultation paper issued earlier this year, which outlined recommendations on regulating the crypto industry. With an eye on incoming regulation, this latest blog will examine what this consultation paper tells us about the future of UK crypto regulation and what are 13 key potential takeaways. Iosco also said global standards were crucial for avoiding regulatory arbitrage – a practice in which businesses take advantage of loopholes in different countries’ regulations.
For both crypto enthusiasts and traditional investors, these upcoming regulations in the UK mark a turning point in the evolution of digital finance. The UK’s decision to regulate cryptocurrencies in 2024 carries significance not only for the domestic market but also for the global cryptocurrency landscape. As one of the world’s leading financial hubs, the UK’s regulatory approach is likely to influence international standards and practices. Britain’s finance ministry said it would move ahead as proposed in a February public consultation, requiring firms undertaking cryptoasset activities to be authorised by the Financial Conduct Authority, although it gave no start date.
Additionally, breach of the prohibition may affect any officer, manager, or beneficial owners’ ability to satisfy the “fit and proper requirements” laid out under the MLRs. Both HMT and the FCA have committed to adopt a hardline approach in enforcing the legislation when it takes effect. Uncover the essentials of building and scaling a crypto AML program and how to navigate regulatory change. Gherson’s criminal litigation, regulatory and investigations team have also previously written a blog entitled Non-fungible token (NFT) Regulation in the UK and a blog entitled Stablecoin regulation in the UK. However, the detailed rules will need to be written and consulted upon by the FCA so the full extent and impact of the framework will take a while to be realised.
But applying similar rules could be difficult as consumers interact in different ways with cryptoassets to traditional finance and there is no currently agreed upon set of indicators or metrics for measuring the impact of cryptoassets. HMT is seeking views on what information is available and would be useful for investors/consumers to assess the environmental impact of their investment decisions. When the broader cryptoasset regime becomes effective, HM Treasury expects firms undertaking regulated cryptoasset activities to adhere to the same financial crime standards and rules under FSMA that apply to equivalent or similar traditional financial services activities. The rules also prohibit incentives to invest such as “refer a friend” bonuses, mandate a 24-hour “cooling off” period between a consumer receiving a direct offer financial promotion and being able to invest, and more robust appropriateness rules for cryptoassets. 1IOSCO defines DeFi as “the provision of financial products, services, arrangements and activities that use DLT to disintermediate and decentralise legacy ecosystems by eliminating the need for some traditional financial intermediaries and centralized institutions”. As such, DeFi allows for user-directed, non-custodial economic transactions via smart contracts.2Layer 1 staking is when a participant `locks up’ cryptoassets for a set period of time to help support the operation of the blockchain.
Blockchains that have consensus mechanisms based on proof-of-stake, require validators or `stakers’ to provide capital (generally in the form of the blockchain’s native token) to the public network. These `stakers’ are incentivised to do so as they receive fees and newly minted tokens as a reward for producing new blocks and securing the network, proportional to the amount they have staked. This process also disincentivises bad actors from acting against the interest of the system as their own capital is at risk. Therefore, cryptoassets will become a new specified investment and HM Treasury (HMT) is proposing to create a number of new specific cryptoasset regulated or designated activities where these activities seek to mirror, or closely resemble, regulated activities performed in traditional financial services.
Fight with Financial Crime in Malta
In April 2021, UK Chancellor, Rishi Sunak announced that a new task force would be formed to explore the potential of a UK central bank digital currency (CBDC). In 2022, the taskforce reported its conclusions, suggesting that while a UK CBDC would bring some financial advantages, it would also introduce significant challenges for uk regulation on cryptocurrency the country’s financial stability and for consumer privacy. In various previous blogs, including What is the current state of crypto regulation in the UK and What changes can we expect to UK crypto regulation, Gherson LPP’s criminal litigation, investigations and regulatory team outlined the current state of UK crypto regulation.