Lately, there has been a buzz about Bitcoin and other cryptocurrency assets. This buzz came about following the massive rise in the value of these crypto-assets. Many people saw the huge potential of investing in cryptocurrencies and are eager to join the train.
But for people new to crypto, there tends to be scepticism about investing in crypto. One of the major reasons for scepticism is the legality of cryptocurrency.
Hence, it’s not surprising to find people asking the question, “Is cryptocurrency Legal in the UK?” If you’re reading this, you’re probably seeking answers to this and many more questions about cryptocurrency’s legality in the UK. Below is everything you need to know!
Cryptocurrency Regulations in the UK
To get an accurate answer to the question, “Is cryptocurrency Legal in the UK?” you need to understand the nation’s crypto regulations. The UK adopts a measured approach toward cryptocurrency. The measured approach matured following the UK’s exit from the European Union.
In 2020, the UK confirmed that cryptocurrency assets are proprietary. However, the country does not consider Bitcoins and other cryptocurrencies as legal tender. Therefore, there are no cryptocurrency laws in the UK.
The Bank of England states that since cryptocurrencies don’t have classical definitional traits, they are not deemed to be money. Cryptocurrencies can’t also pose a systemic risk to the banking system’s stability.
Despite cryptocurrencies not posing a risk to the banking ecosystem, the Bank of England and the Financial Conduct Authority (FCA) still issued guidance and warnings about their usage.
These warnings came about because these crypto assets are dynamic depending on their type, nature, and use.
The warnings from the Bank of England and the FCA have to do with the following:
- The non-existence of monetary and regulatory protection.
- Cryptocurrencies’ status as stores of value.
- Other dangers attributed to cryptocurrencies such as volatility and speculative trading.
Due to the uncertainties regarding cryptocurrencies’ regulation, the United Kingdom government created a task force in 2018. The task force dedicates itself to the crypto market and seeks to establish UK cryptocurrency regulations. The task force spelt out three cryptocurrency types and three ways of using crypto assets.
According to the task force, the three ways of using cryptocurrencies include:
- As a Barter: In this form, crypto assets act as decentralised tools to aid trade and make regulated payment services possible.
- For Investment: Crypto asset holders can obtain indirect risk when they hold or trade their cryptocurrencies.
- To increase supporting capital or create decentralised networks via Initial Coin Offerings (ICOs).
UK cryptocurrency legal regulators define crypto assets in the following ways:
- E-Money: These are digital representations of the UK Pound Sterling or the US Dollar. E-money’s definition fits that in the 2011 Electronic Money Regulations.
- Security Coins: These coins possess characteristics like financial securities, e.g., debt or equity instruments, as applicable to UK law. Generally, security coins will most likely be tokenised (securities’ digital forms). Security coins are within the UK’s regulatory scope. Hence, they apply to FCA regulation.
- Unregulated Coins: These are coins that are neither e-money nor security coins. These coins may be:
- Utility Coins: These are coins used to pay for a service, financial product, or gain access to a blockchain platform like DLT-cloud storage.
- Exchange Coins: These are coins used mostly as methods of exchange. Examples include major cryptocurrencies like Bitcoin, Ethereum, and Litecoin.
After making these definitions, the task force set out a requirement for additional Anti-money Laundering (AML) and Combating the Financing of Terrorism (CFT), as well as taxation considerations.
In that regard, Her Majesty’s Revenue and Customs (HMRC) released a brief on taxing cryptocurrency profits. HMRC stated that crypto assets’ unique identity meant they are not comparable to conventional payments or investments.
The taxability of crypto assets is dependent on the parties and activities involved. Any cryptocurrency losses or gains are liable to Capital Gains Tax (CGT).
Regulations for UK Cryptocurrency Exchange Platforms
Cryptocurrency exchanges allow cryptocurrency traders and investors to buy, hold, and sell their crypto assets. If you want to buy a crypto asset like Bitcoin, you need to register on a cryptocurrency exchange. After registering, you’ll get a wallet address where you can store all your crypto assets.
To buy an asset, you have to deposit money (fiat currency) into your exchange account via bank transfers, credit cards, wire, or other deposit methods. After the deposit, you can exchange your money for the value of the crypto asset you want.
Note that you’ll pay a fee to the crypto exchange for this service. After making the purchase, you can either hold it or sell it if it rises in value. You can also buy more assets if you wish.
UK cryptocurrency regulations require all cryptocurrency exchanges to register with the FCA. Cryptocurrency exchange regulations also require all UK crypto companies to adhere to the customer protection obligations, and AML/CFT reports.
Entities that engage in crypto assets activities must abide by the Money Laundering, Terrorist Financing, and Transfer of Funds Regulations 2017, which got amended in January 2020.
What Happens When Crypto Exchanges Don’t Adhere to the Regulations?
The FCA takes cryptocurrency regulations in the United Kingdom seriously. Recently, it banned Binance, a major cryptocurrency exchange in the world, from conducting any regulated activity in the UK.
In a statement, the FCA said Binance’s sole regulated UK entity, Binance Markets Ltd, must not engage in any regulated activities without the FCA’s written consent. Following the crypto ban, Binance said the FCA’s move would not impact a customer’s ability to buy and sell cryptocurrencies via its website.
According to reports, it was easy for people to register on Binance and own an account with fake names, postcodes, and addresses. There are reports of people buying cryptocurrency assets on the platform using different bank details. Hence, many banks were getting increasingly agitated by the high scam rate of fraudsters with Binance accounts.
In a statement, Binance said Binance Markets, which it bought in 2020, was yet to start using its regulatory permissions. The crypto exchange giant also said the FCA’s move does not affect the services it offers on its website.
Binance further reiterated its commitment to collaborating with regulators, adding that it strives to comply with FCA obligations. The company also maintained its commitment to keeping up with policy changes, laws, and rules, in the ever-changing and relatively new crypto space.
Further to its crypto ban on Binance, the FCA directed the company to display a notice on its website and social media channels. The notices must indicate that Binance Markets is not allowed to engage in any regulated activity in the UK. Besides the notice, Binance must preserve and secure all its UK customers’ records. By July 2, the company must inform the FCA of its compliance with the directives.
Consequences of the Crypto Ban on Binance Markets
Following the FCA’s ban on Binance Markets, many cryptocurrency enthusiasts got worried. There were multiple questions about cryptocurrency being legal in the UK. With reports linking cryptocurrencies with fraudulent activities, people who were eager to invest in crypto lost their zeal.
However, this should not be the case. Even with the ban on Binance, Bitcoin is legal. You can still buy and sell Bitcoin in the UK. If you’re in the UK, you can access Binance’s offerings in other jurisdictions. You can do so because the company’s website is not UK-based and falls outside FCA’s jurisdiction.
Even with the UK ban on Binance Markets, major cryptocurrencies like Bitcoin and Ethereum remained unfazed in the crypto market. The ban only added to the setbacks Binance has been facing in recent times but does little to hamper the growth of the cryptocurrency industry as a whole. Therefore, if you’re a UK citizen and want to invest in cryptocurrency, this should not deter you from doing so.
Further proof that Bitcoin is legal in the UK is the presence of over 250 Bitcoin ATMs in the country. You can buy cryptocurrency assets via these ATMs. No other country in Europe has a higher number of Bitcoin ATMs than the UK. For these ATMs to exist, it means the FCA licenses and regulates the operators.
The FCA’s Ban on Cryptocurrency Derivatives
When people question cryptocurrency being legal in the UK, one thing they point to is the FCA’s ban on crypto derivatives.
Earlier this year, the FCA banned the offering of cryptocurrency derivatives products to UK retail users. To understand this ban, you need to know what cryptocurrency derivatives are.
Crypto derivatives are financial tools or secondary contracts that attain value from a primary underlying asset. Since this is cryptocurrency-related, the primary underlying assets, in this case, will be cryptocurrencies like Bitcoin or Ethereum. The most common cryptocurrency derivatives include crypto options, crypto futures, and perpetual contracts.
In banning crypto derivatives in the UK, the FCA cited five reasons for doing so. These reasons include:
- Digital assets don’t have a reliable benchmark for calculating values because of the underlying assets’ intrinsic nature.
- There is high criminality and abuse penetration in the secondary market.
- Digital assets have extreme volatility in their price fluctuations.
- Most retail customers don’t have an adequate understanding of cryptocurrency assets.
- There is no legitimate reason for retail customers to invest in virtual assets.
Is Crypto Legal in Other Countries?
Besides the UK, cryptocurrency is legal in countries like the United States of America, Japan, Canada, and most of the developed countries in the world. However, the legal status of Bitcoin and other cryptocurrencies in these countries varies widely.
For example, China heavily restricts Bitcoin but doesn’t criminalise holding the crypto asset. Meanwhile, India banned its financial institutions from dealing with Bitcoin. Hence, Bitcoin’s legal status in the Asian nation remains unclear.
Like the UK, other countries where Crypto isn’t banned have general laws for Bitcoin and other cryptocurrencies. Crypto traders and investors need to understand these laws to avoid falling short of them. In addition, ensure you know the tax laws and how it concerns crypto assets, so you don’t evade taxes and find yourself in trouble.
Countries where crypto is legal don’t treat Bitcoin and other cryptocurrencies as legal tenders. Instead, they classify cryptocurrencies as assets.
However, in June 2021, El Salvador went against the norm by becoming the first nation in the world to recognise Bitcoin as a legal tender. At the moment, it is unclear whether other countries will follow suit, but the development is great proof that cryptocurrency is here to stay.
If you have kept up with us, you now have all the answers to questions you have about cryptocurrency being legal in the UK. First, as a recap, you should remember the UK does not classify cryptocurrencies as legal tender. Instead, the country regulates the activities of crypto exchanges and other virtual assets providers (VASPs).
For these exchanges and virtual assets providers to be legal, the FCA must grant licenses to them. In addition, these VASPs must abide by all FCA regulations and other laws to carry out their activities.
If these VASPs fail to abide by the rules and regulations, they risk a ban from the FCA. The crypto world observed this when the FCA banned Binance Markets, a subsidiary of crypto exchange giant Binance, from operating in the UK.
The UK also has a task force that defines cryptocurrency regulation in the country. The country also taxes crypto investors and traders based on their activities, entities, and tokens.
With this newfound knowledge about the legality of cryptocurrency in the UK, you can go on to invest in a crypto asset of your choice without fear.
You should also stay ahead of the game by staying informed about the latest developments in the crypto world. You can do so easily by always checking out our website for cryptocurrency-related news, signals, and trading help. Good luck!