The cryptocurrency market is rapidly changing, growing, and attracting investors. As a result, more and more countries are choosing to introduce new regulations to improve the functioning of the crypto market and protect participants from fraud or illegal activities. This issue also applies to the UK. If you want to learn more about UK crypto regulation and find the answer to whether cryptocurrency is legal in the UK, we encourage you to continue reading this guide to UK crypto laws.
- UK cryptocurrency firms must register with the FCA, UK’s main financial regulatory body, and comply with AML/CFT Regulations.
- According to current UK crypto-related Travel Rule (TR), introduced on September 1st, 2023, crypto companies must collect, verify, and share information regarding the transfer of crypto assets, aiming to curb the potential use of digital assets for illegal purposes.
- The implementation of stricter regulations in the UK is based in FATF Regulations aiming to regulate the cryptocurrency market internationally and to increase investor security and bringing more transparency to the sector.
Who is the regulatory body responsible for United Kingdom cryptocurrency regulation?
The Financial Services Regulatory Initiatives Forum (FSRIF) sets out UK’s regulatory pipeline. The Financial Conduct Authority (FCA) and Bank of England (BoE)/Prudential Regulation Authority (PRA – part of the Bank of England) co-chair the Forum, however its members list also consists of representatives from: Competition and Markets Authority (CMA), Financial Reporting Council (FRC), HM Treasury (HMT) (Observer member), Information Commissioner’s Office (ICO), Payment Systems Regulator (PSR), Prudential Regulation Authority (PRA), The Pensions Regulator (TPR).
The primary financial regulator in the UK is the Financial Conduct Authority (FCA). This body reviews the activities of crypto-asset providers to ensure quality of service and to ensure they implement adequate anti-money laundering and counter-terrorist financing (AML/CFT) policies and procedures.
The FCA maintains a register of crypto-asset providers subject to UK money laundering regulations and issues guidance accordingly. Regarding assets, currently, security tokens solely are FCA regulated.
Other UK institutions regulating Virtual Assets (VAs) providers include the HM Treasury and the Bank of England (BoE). JMLSG issues a guidance to assist those in financial industry sectors to comply with their obligations in terms of UK anti money laundering (AML) and counter terrorist financing (CTF) legislation and the regulations prescribed pursuant to legislation.
What are the leading UK crypto rules?
In order to legally operate in the UK, companies from the cryptocurrency sector must follow several legal guidelines. First and foremost, it is essential to comply with AML/CFT requirements (MLR). This regulation is aligned with the 5th EU Anti-Money Laundering Directive and the Travel Rule.
In addition, depending on the type of institution and the crypto assets the cryptocurrency company deals with, additional regulations may apply, such as: the Financial Services and Markets Act 2023 (FSMA), the EMR – Electronic Money Regulations 2011 or the PSR – Payment Services Regulations 2017 as amended in 2023, and Bank of England’s Prudential Regulations.
The FSRIF issues biannually a Regulatory Initiatives Grid, setting out the planned regulatory initiatives for the next 24 months:
UK regulations around cryptoassets and VASPs issued by the FCA:
- Money Laundering Regulations (official regulation – inclusive of Travel Rule requirements in Part 7)
Other related publications:
- Cryptoassets: AML / CTF regime – Registering with the FCA
- Financial Services and Markets Act 2023 (FSMA official regulation).
- Financial promotion rules for cryptoassets (official regulation)
Other related publications:
■ FCA sets out expectations for UK cryptoasset businesses complying with the Travel Rule
■ Guidance on cryptoasset financial promotions
■ FG23/3: Finalised non-handbook Guidance on cryptoasset financial promotions
■ Firms’ preparations to comply with the cryptoasset financial promotions regime and modification to financial promotion rules
■ FCA sets expectations ahead of incoming crypto marketing rules
■ FCA warns about common issues with crypto marketing
The Advertising Standards Authority (ASA) released an update on FCA overtaking the regulation of marketing for qualifying cryptoassets:
- Financial products and services: Cryptoassets – update notice
- Other FCA publications relevant in the context of cryptoassets:
UK financial Regulations issued by the HMT applicable to crypto services:
Prudential Regulations issued by the BoE:
Other related publications:
- PRA’s approach to supervision of the banking and insurance sectors
- The Prudential Regulation Authority’s approach to insurance supervision
- The Prudential Regulation Authority’s approach to banking supervision
- Regulated firms
JMLSG Guidance – Cryptoasset service providers are covered in Part II:
What entities are impacted by UK cryptocurrency regulation?
According to the regulatory provisions of the MLR, the firms affected by UK crypto regulation are crypto asset service providers and custodian wallet providers seeking to carry on cryptoasset activity in the UK and UK-based VASPs.
Regulation of cryptocurrencies in the UK – Introduction of Travel Rule
As of September 1, 2023, new, stricter requirements for the so-called Travel Rule took effect in the UK, extending to the cryptocurrency industry. Under the rules, cryptocurrency companies are required to collect, verify, and share information regarding the transfer of cryptocurrencies.
The Travel Rule was introduced in accordance with the FAFT’s latest recommendations as Part 7 of the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017. Implementing the Travel Rule aims to increase cryptocurrency transfer transparency and support the detection of suspicious transactions.
A grace period is applied during the implementation of the Travel Rule. Although the new rules for cryptocurrency companies were already enacted on July 21, 2022, the time to comply with the new requirements was set for September 1, 2023.
Timetable for action regulating cryptocurrencies in the UK
- July 22 – October 14, 2021 – consultation period on amendments to the MLR – The UK, whose aspiration is to be Europe’s cryptocurrency hub, is betting on regulating a sector that is vulnerable to numerous threats. The introduction of the Travel Rule was preceded by consultations with representatives of the digital asset sector. The aim of this was to adapt the new UK crypto regulation to market realities and limit the adverse effects on market participants.
- July 21, 2022. – New money laundering and terrorist financing regulations have been published, introducing Travel Rule obligations for UK VASP providers. The start of the 1 year grace period.
- July 28, 2023 – August 25, 2023 – publicconsultation period on crypto Travel Rule guidance
- September 1, 2023. – The grace period ends and Travel Rule requirements take effect.
Travel Rule for Cryptocurrency Businesses – crypto market rules in the UK
The Travel Rule was implemented in the UK due to the Financial Action Task Force (FATF) recommendations.
The Travel Rule requires crypto-asset service providers to collect information on the payer, beneficiary, and transaction. Suspected illegal activities should result in sanctions, such as blocking crypto-assets account access.
The Travel Rule covers any cryptocurrency company based in the UK, which can be defined as a cryptocurrency exchange provider or a custodial wallet provider. UK crypto providers must abide by the Travel Rule when sending or receiving a cryptoasset transfer to an entity that is in the UK, or any jurisdiction that has implemented the Travel Rule, even when using an intermediary cryptoasset business.
In the eventuality where the UK crypto provider cannot receive the required information, it is still responsible to collect, verify and store the required information before making the cryptoasset transfer, while considering the countries in which the entity operates and the status of the Travel Rule in those countries.
Travel Rule in the UK – regulation of crypto-assets and transactions involving them
The Travel Rule is designed to increase the transparency of cryptocurrency transfers and thus make it more challenging to use them for illegal activities. The new rules involve transferring the required information of parties involved in cryptocurrency transfers between centralized cryptocurrency companies.
The information required from the parties involved in a cryptocurrency transfer varies depending on the value of the transfer and whether all cryptocurrency companies engaged in the transfer do business in the UK.
According to recommendations presented by the FATF, countries should adopt a minimum threshold of $1,000/EUR for VA (Virtual Assets) transfers. As a rule, transactions below this threshold should be subject to lesser requirements than transactions beyond the stated threshold. In the UK, the EUR 1000 threshold has been adopted, where one of the participants to the transaction is not a UK-based entity. For crypto transactions where both participants are doing business in the UK (domestic transfers), there is no minimum threshold applicable.
Transactions with unhosted wallets render the crypto provider responsible for requesting the following information from the user, in the case where the transfer is incoming and equals to or exceeds EUR1000, about the originator:
- the customer identification number;
- the individual’s address;
- the individual’s birth certificate number, passport number or national identity card number;
- the individual’s date and place of birth.
Increased investor security with new cryptocurrency law in the UK
UK-based cryptocurrency companies must comply with the Travel Rule before allowing transfers between cryptocurrency companies and should verify the information they receive.
According to regulations, any cryptocurrency company operating in the UK must be registered or authorized by the Financial Services Authority. It is also necessary to clearly communicate to customers that investing in cryptocurrencies carries a high risk of losing all the money invested.
UK crypto regulation – FAQ
1. Since when has the Travel Rule been in effect in the UK?
Travel Rule is a UK regulation on cryptocurrency, introduced on September 1, 2023. Under the rules introduced, cryptocurrency companies are authorized to block transactions if they violate UK regulations and may be related to money laundering or terrorist financing.
2. Is the Travel Rule mandatory for the cryptocurrency industry?
Yes, all UK cryptocurrency companies are subject to cryptocurrency regulations called the Travel Rule. The new rules were introduced into UK law under Part 7A (on transferring crypto assets) of the Money Laundering and Terrorist Financing Regulations.
3. What is the primary duty associated with the Travel Rule?
The Travel Rule requires UK-based cryptocurrency companies to collect, verify, and share specific information about transfers of digital assets.
4. What is the purpose of the Travel Rule?
The Travel Rule introduces measures designed to prevent money laundering, terrorist financing, and other financial crimes. This is to be fostered by obligations imposed on cryptocurrency companies to detect suspicious transactions.
5. What type of authority regulates cryptocurrencies in the UK?
The Financial Conduct Authority (FCA) is the authority responsible for overseeing cryptocurrency businesses and implementing regulation of the crypto industry in the UK.
6. What are the cryptocurrency regulations in the UK?
As of January 10, 2020, all companies wishing to conduct cryptocurrency-related business in the UK that are not correctly licensed must register with the FCA and comply with KYC, AML, and anti-terrorist financing rules.
7. What is the FATF?
FATF is an independent intergovernmental body dedicated to developing and promoting policies to protect the global financial system from abuses such as money laundering and terrorist financing. FATF recommendations are considered the international standard for countering both procedures.
8. What is VASP?
VASP is a generally accepted term for cryptocurrency exchanges, digital wallet providers, and entities that provide financial services related to the issuer’s offering or sale of virtual assets, however variations of this terminology can be observed at jurisdiction level.
9. What does VA stand for?
VA stands for Virtual Assets – virtual assets are defined by the
FATF as digital representations of value that can be traded digitally or transferred and that can be used for payment or investment purposes.
10. Are cryptocurrencies legal in the UK?
Yes, cryptocurrencies are legal in the UK. However, they are not legal tender. They are also subject to regulation, including the Travel Rule introduced in September.