Regulatory Approaches to Cryptoassets: United Kingdom

Key Points

• The UK has yet to introduce legislation to regulate the use of cryptocurrencies, adopting a wait-and-see approach.
• Existing financial regulations may apply to cryptocurrencies depending on their use, determined on a case-by-case basis.
• HM Revenue & Customs classifies cryptoassets as digitally secured representations of value or contractual rights that can be transferred, stored, or traded electronically.
• The UK is developing a framework to address anti-money laundering concerns within its cryptoasset framework.
• The Cryptoasset Taskforce was established to consider the policy and regulatory implications of cryptoassets and DLT technology.

Detailed Summary

• The UK's Financial Conduct Authority (FCA) is currently consulting on guidance for cryptoassets to provide regulatory clarity for market participants.
• The Cryptoasset Taskforce has identified three types of cryptocurrencies: exchange tokens, utility tokens, and security tokens, and three different uses for cryptoassets: as a means of exchange, for investment, and for capital raising.
• Cryptocurrencies used as a means of exchange may fall within the regulatory perimeter under the Payment Services Regulations 2017 (PSR) if they meet certain criteria.
• HM Revenue & Customs does not consider cryptoassets as currency or money. Instead, they are defined as cryptographically secured digital representations of value or contractual rights.
• The UK government is consulting on bringing cryptocurrencies within its anti-money laundering framework in accordance with the EU Fifth Anti-Money Laundering Directive.
• The Cryptoasset Taskforce has proposed consulting on a prohibition on selling derivatives referencing exchange tokens to retail consumers due to concerns about consumer protection and market integrity.

Conclusions

• The UK is taking a cautious approach to regulating cryptoassets, balancing the need for consumer protection and financial stability with the potential benefits of innovation in the financial sector.
• The UK's regulatory framework for cryptoassets is still evolving, and the government is actively engaged in developing a comprehensive response to the challenges and opportunities presented by this new asset class.