The UK's Financial Conduct Authority (FCA) has issued a reminder to all cryptoasset businesses operating in the country. They must submit their registration applications by the end of the month to comply with new anti-money laundering (AML) regulations.
This call to action is part of the FCA's broader effort to bring the crypto industry under a regulated framework. The deadline allows the regulator sufficient time to review submissions and ensure companies are prepared for the full registration process, which must be completed by January 10, 2021.
Understanding the FCA’s Registration Mandate
The FCA has made it clear that crypto companies must provide detailed information about their business entities, applicants, and operational objectives. A key requirement is a thorough outline of their anti-money laundering framework and risk assessment procedures.
Firms that were operating before January 10, 2020, must be registered by the January 2021 deadline. Any company that fails to do so will be required to cease all operations. New businesses wishing to start operations after that date must complete their registration before commencing any activities.
The Legal Foundation of the New Rules
The regulatory push stems from the European Union’s Fifth Anti-Money Laundering Directive (5AMLD). It is enforced in the UK through the amended Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLR 2017).
This means crypto firms must adhere to strict AML and Counter-Terrorist Financing (CTF) policies. The FCA's role is to supervise and enforce these requirements.
A Closer Look at the UK’s Crypto Asset Guidance
In early 2019, the FCA released a comprehensive 50-page consultation paper titled "Guidance on Cryptoassets." This document serves as a foundational text for market participants. It helps them determine if their activities fall under regulatory purview and which rules apply.
The paper also provided crucial definitions, categorizing crypto assets based on their function and legal status.
The Three Categories of Crypto Assets
The FCA’s guidance establishes three primary categories for digital assets:
- Exchange Tokens: These are cryptocurrencies, like Bitcoin or Litecoin, used primarily as a medium of exchange. They are not issued by a central bank.
- Security Tokens: These assets resemble traditional investments like stocks or bonds. They fall under the category of "Specified Investments" and are subject to regulatory oversight.
- Utility Tokens: These tokens provide holders with access to a specific product or service. They do not confer ownership or investment rights and are typically not regulated.
Regulatory Status of Major Cryptocurrencies
Following a public consultation period, the FCA confirmed that pure exchange tokens like Bitcoin and Ethereum are not subject to most regulatory requirements. However, businesses dealing with them must still comply with all AML and CTF regulations.
The Case of Security Token Offerings (STOs)
Security Tokens (STOs) are treated differently. The FCA classifies them as financial instruments under the revised Markets in Financial Instruments Directive (MiFID II). Consequently, issuing or trading STOs requires authorization and compliance with strict regulatory standards.
Cryptoasset Taxation in the UK
Her Majesty's Revenue and Customs (HMRC) has also clarified its stance on cryptocurrency taxation. In a late 2019 statement, the tax authority defined cryptoassets as property or assets, not as currency.
Key tax implications include:
- No Stamp Duty or Stamp Duty Reserve Tax is levied on the buying or transferring of cryptoassets.
- Activities like mining, trading tokens, and exchanging tokens for other assets are subject to other taxes. These include Income Tax, Capital Gains Tax, and National Insurance contributions for businesses.
The Future: Exploring a Digital Pound
Looking beyond regulation, the UK is actively researching a Central Bank Digital Currency (CBDC). In March 2020, the Bank of England published a discussion paper exploring the potential opportunities, challenges, and design of a CBDC.
The report noted that while many proposed CBDCs use Distributed Ledger Technology (DLT), a UK digital currency would not necessarily require it. The central bank remains open to various technological solutions for implementing a secure and efficient digital currency. For those looking to understand how these developments might influence their digital asset strategy, it's wise to explore more regulatory insights.
Frequently Asked Questions
What is the deadline for crypto companies to register with the FCA?
Firms must submit their registration applications by the end of June. The full registration process must be completed by January 10, 2021, for existing businesses.
Does the FCA regulate Bitcoin?
Bitcoin itself is classified as an exchange token and is not directly regulated. However, any UK business providing services involving Bitcoin must register with the FCA and comply with its anti-money laundering rules.
What are the three types of cryptoassets defined by the FCA?
The FCA categorizes cryptoassets into three types: Exchange Tokens (e.g., Bitcoin), Security Tokens (similar to stocks), and Utility Tokens (providing access to a service).
Are crypto-to-crypto trades taxable in the UK?
Yes, according to HMRC, trading one cryptoasset for another is a taxable event. It may be subject to Capital Gains Tax for individuals or Corporation Tax for companies, depending on the circumstances.
What is the UK's stance on a central bank digital currency?
The Bank of England is actively researching the potential for a UK CBDC. It has published a comprehensive report discussing its design and implementation but has not yet made a decision to launch one. To stay ahead of these global trends, you can discover strategic resources.
What happens if a crypto business misses the registration deadline?
Any existing cryptoasset firm that has not successfully registered by January 10, 2021, will be required to shut down its operations in the UK immediately.