Despite cryptocurrency's surge in popularity, there has been a mounting backlash against digital currencies from authorities around the world.
Without a dedicated regulatory framework or governance from central banks or institutions, there are well-founded worries about the minimal lack of legal protection available to consumers with digital assets, and the absence of regulations on exchange platforms makes much of their activities beyond the remit of traditional financial law.
As the government continues to develop a "broader regulatory approach" to cryptocurrencies, we walk you through if - and to what extent - cryptocurrencies are regulated in the UK.
Are cryptocurrencies regulated in the UK?
Cryptocurrencies - such as bitcoin, ethereum and litecoin - are not currently subject to any blanket UK financial regulations, which means that there is no legal framework for regulating or monitoring transactions conducted with cryptocurrencies. Therefore, investors have no protection for the money they have invested in them.
Cryptocurrencies are also not considered legal tender under UK law due to their lack of traditional "money" characteristics, according to the Bank of England (BoE).
Are cryptocurrency exchange platforms regulated in the UK?
In January 2020, cryptocurrency exchange platforms were asked by the Financial Conduct Authority (FCA) to sign up to a new registration scheme. Firms that have already signed up or are in the process of signing up to this register - the Registered Cryptoasset Firms list - are legally permitted to trade in the UK, but the extent of the FCA's regulation is limited to monitoring how firms manage the risk of money laundering and counter-terrorist financing.
Exchanges with FCA permission to trade in the UK
From 10 January 2021, all UK cryptocurrency firms that have "a presence or market products in the UK, or that provide services to UK resident clients" must have already registered or be in the process of registering with the FCA in order to be permitted to trade in the UK. These exchanges must comply with 'Anti-Money Laundering' and 'Combating the Finance of Terrorism' reporting, as well as customer-protection obligations. The list of cryptocurrency exchange platforms with FCA permission to trade in the UK can be found on its website's Registered Cryptoasset Firms page.
Exchanges pending FCA permission to trade in the UK
The Temporary Registration Regime, which was introduced for the firms that applied for registration before 10 January 2021 and whose applications are still being assessed, enables those businesses to continue to trade in the UK while the FCA completes the assessment of their application. Firms permitted to trade in the UK while awaiting approval can be found on the FCA's list of Cryptoasset Firms with Temporary Registration.
Exchanges that do not have FCA permission to trade in the UK
Firms that are not registered with the FCA and are continuing to trade can be found in the 'Unregistered Cryptoasset Businesses' list on the FCA website. These are not legally permitted to conduct trade activity in the UK. UK customers can still access and use these companies at their own discretion, as the vast majority are based overseas and therefore do not fall within the FCA's remit, but the FCA discourages this and emphasises the lack of protection against illegal activity.
No FSCS protection
It's crucial to note that whether the company is registered with the FCA or not, investors will not have access to the Financial Services Compensation Scheme (FSCS) if their digital assets are compromised, meaning there is no reimbursement for any lost or stolen funds.
Even the cryptocurrency exchange platforms that have registered with the FCA are not covered by the FSCS.
Are other cryptoassets regulated in the UK?
Even though cryptocurrencies themselves like bitcoin are not regulated, some types of cryptoassets - such as security tokens, which fall within the FCA's regulatory remit - may be, if the firm is registered with the FCA.
Security tokens are cryptoassets that provide rights, such as:
- An ownership position
- Repayment of a specific sum of money
- Entitlement to a share in future profits
You should check the Financial Services Register to find out whether a cryptocurrency firm is authorised to facilitate any of the above activities, as these may be protected by the FSCS as long as the company is registered with the FCA.
FCA advice on what to do before investing in cryptocurrencies:
If it is not on the Financial Services Register, enquire directly if it is permitted to carry out business without being registered with the FCA.
If it is not permitted to carry out business, the FCA suggests withdrawing your cryptoassets and/or money, as the firm is now operating illegally.
List of cryptocurrency exchange platforms with FCA permission to trade in the UK:
The FCA has granted registration to the following exchange platforms:
- Ziglu Limited
- Gemini Europe Services Ltd.
- Digivault Limited
- Zodia Custody Limited
- Ramp Swamps Limited
- Fibermode Limited
- Archax Ltd.
- Gemini Europe Ltd.
Exchanges platforms currently undergoing FCA assessment include:
- Kraken Exchange
The rest of the firms pending registration can be found on the FCA website.
More on cryptocurrencies
For a back-to-basics explanation of what cryptocurrencies are and how they work, check out our article 'A beginner's guide to bitcoin and cryptocurrency'.
Or, if you're confused about how cryptocurrencies are made, visit 'Cryptocurrency mining: What it is, how it works and how to mine bitcoin'.
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