Cryptocurrencies continue to upsurge in popularity – revolutionising the financial industry with their autonomous structure worldwide. With an increasing number of individuals and companies embracing digital currencies, the United Kingdom (UK) has been an active player in the cryptocurrency industry. However, the regulatory environment surrounding cryptocurrencies has been swiftly transforming in recent years.
The recent regulatory updates have brought about some positive changes in the world of cryptocurrencies. One such change is a transparent legal framework – safeguarding investors and encouraging more comprehensive adoption of these digital assets.
The recent regulatory updates also posed significant challenges. One primary concern is the potential hindrance of innovation due to strict regulations. Critics argue that excessive regulatory scrutiny will discourage the progress of revolutionary blockchain technologies in the UK. Moreover, advocates of cryptocurrencies firmly believe that increased regulation needs to be consistent with the decentralised nature of digital currencies.
Regulation of Cryptocurrency in the UK
The UK Government and other monitoring organisations have recognised the need to launch a regulatory body – To alleviate the risks associated with cryptocurrencies like terrorist financing, consumer protection and money laundering. By then, regulatory bodies in the UK were established to oversee cryptocurrency regulation. The regulatory bodies are;
- Financial Conduct Authority (FCA)
- Her Majesty Treasure (HMT)
- Bank of England (BOE)
1) Financial Conduct Authority (FCA)
FCA is playing a leading role in regulating the Cryptocurrency in the UK. It became counter-terrorism and anti-money laundering supervisor for UK crypto assets in January 2020. FCA involves crypto-related businesses like cryptocurrency exchanges and wallet providers to register with its policies to comply with strict anti-money laundering and other financial regulations.
2) Her Majesty’s Treasure (HMT)
The UK Government started taking steps in 2020 to regulate Cryptocurrency in the UK for consumers. For this purpose, the UK Government conducts meetings to regulate crypto assets and develop the financial status of UK residents. The meeting also emphasises the consultation on stable coins like Binance USD and Magic Internet Money (MIM), ensuring impactful innovations and competition in the financial sector.
3) Bank of England (BOE)
BOE has played a developmental role in the cryptocurrency market by actively monitoring crypto assets. It has emphasised and expressed concerns over the potential risks associated with cryptocurrencies and the need for robust crypto regulation in the UK. The main aim of the bank is the financial stability of the Cryptocurrency in the UK.
Regulation Updates of Crypto Currency in the UK
UK Government took challenging steps to protect the consumer’s business and improve the UK economy rate with robust crypto assets regulation. In the last two years, UK Government set out proposals and calls for evidence to make a focused approach towards stablecoins. The prior consultation focuses on the UK regulatory framework with anticipated proposals for crypto assets.
Two significant regulations were approved to improve the UK’s crypto financial status and economy rate.
1) FCA reinforces Regulations for Crypto Assets:
On 19th January 2022, FCA published a consultation paper CP22/2 to provide firm and modified regulations for the crypto assets businesses in the UK. This consultation paper mitigates the financial risks associated with all crypto businesses. Moreover, the main aim was to enhance consumer protection. Under the updated crypto regulations, all UK crypto-asset businesses must devise diligence protocols and measures for Anti Money Laundering (AML) and Know Your Customer (KYC) procedures. Severe adaptations were considered in the consultation paper; crypto asset businesses were assisted in notifying suspicious activity. Financial Conduct Authority (FCA) was committed to maintaining the integrity of the financial system of the UK while updating the economic status of the cryptocurrency sector.
2) UK Government Launches Consultation on Stablecoin Regulation:
On 1st February 2023, the UK Government, including UK’s Economic and Finance Ministry and HM Treasury, launched a consultation paper that shows insights and public opinions on regulating stablecoins.
What are the stablecoins?
Stablecoins are a type of Cryptocurrency that mainly handles fluctuations in the currency. It is accomplished by adapting different measures and protocols to invest money into an underlying crypto asset, like a commodity.
The consultation sheds light on general public issues like consumer protection, financial stability and competition. It also incorporates reviews on stablecoins and the potential impact of business icons. The UK Government maintains stability between the rising innovation of Cryptocurrency and the robust regulatory bodies in the digital financial sector.
Regulating Crypto Report by Treasury Committee
The first report for Cryptocurrency was approved by European Lawmakers of Parliament in 2018. It was the world’s first comprehensive compendium aimed at regulating Cryptocurrency. The House of Commons Treasury Committee presents the fifteenth report of” Regulating Crypto” for the sessions 2022-23 on 10th May 2023.
Conclusion and Recommendations of the Report
The concluding remarks from the committee were, “We understand the potential for crypto assets and their underlying technology to boost financial services and markets. The most compelling use case we have heard is the ability of crypto asset technology to improve. An appropriate legal framework would encourage the development of such technologies in the UK while also minimising some of the dangers associated with crypto assets. As a result, we appreciate the Government’s publication of suggestions for how it intends to regulate crypto assets used in financial services.”
The future recommendation in the report was ‘The UK Government must encourage the development of crypto asset technology in a balanced manner. Also, the Government should try to avoid spending public money. As appears to have been the case with the Royal Mint NFT, resources were spent on enabling crypto asset activities without a clear, helpful use case. It is not the job of the Government to encourage certain technical advancements for their own sake”.
In one of his Crypto currency articles, a writer for The Academic Papers UK suggests that the Government should regulate retail trading and investment activity in unbaked crypto assets rather than a financial service under the principle of “same risk, same regulatory outcome.”
The United Kingdom has taken an aggressive approach to cryptocurrency regulation, observing the potential advantages while ensuring potential hazards. The Financial Conduct Authority (FCA), the Bank of England (BOE), and Her Majesty’s Treasury (HMT) have created ways to establish a regulatory framework that balances innovation, consumer protection, and financial stability.
Frequently Asked Questions (FAQs)
Why Is There A Need To Stay Updated About Cryptocurrencies For UK Residents?
UK individuals and local businesses must stay updated about the cryptocurrency status of the UK. For this purpose, the regulatory bodies should update the policies and conditions according to digital currency advancements – ensuring compliance and mitigating the UK market’s financial risks.
Is The UK Playing An Active Role In Regulating Cryptocurrencies?
The UK is expected to remain active in regulating the cryptocurrency department. It will establish a balancing platform between the innovation and the interests of the consumers – providing a beneficial platform overall.
What Are The Parameters For Keeping Business Aligned With The Financial Status Of The Cryptocurrency?
Because of the continuous improvement in the field of Cryptocurrency, individuals and businesses must stay updated and adapt to changes according to the regulatory bodies of the UK. Some parameters should follow procedures like tax implications and legal and regulatory cryptocurrency awareness.
How Has The UK Established Itself As The Global Leader In Cryptocurrency?
UK Government established a trusty and transparent environment by formulating regulations to innovate and adopt crypto assets. UK Government also showed keen interest in monitoring developments and progress in the cryptocurrency sector and making regulatory updates in the UK – ensuring the integrity and security of the financial system. Thus it is leading the world as a global leader in Cryptocurrency.
Is The Use Of Cryptocurrency Legal In The UK?
Yes, cryptocurrencies are legal in the UK and are subject to regulations to prevent illegal actions and system fraud.
Is There Any Tax On Cryptocurrency Transactions?
Yes, the UK Income Tax is implemented on crypto transactions. The amount of tax is not fixed; but depends on the transaction nature, the individual’s tax status and the holding period of the amount.