Since the days of the British Empire, the United Kingdom has been one of the world’s largest and most influential economic powerhouses. Even though its financial control over the world has substantially decreased, the country is still one of the most culturally relevant regions in the world, especially when it comes to the adoption of a trend.
A survey by London-based law firm Michelmores LLP revealed that 20% of affluent millennials in the United Kingdom have invested in Bitcoin (BTC) and other cryptocurrencies. Keeping this in mind, when the U.K.’s Financial Conduct Authority (FCA) proposed a crypto ban, it caught the attention of the entire crypto ecosystem.
Crypto regulations in the U.K.
Up until now, the U.K. hasn’t made any specific crypto-focused law, and its regulators have had a fairly lenient approach to cryptos. Although the country has no explicit cryptocurrency legislation, cryptocurrencies are not deemed legal tender, while exchanges have registration requirements and need to be registered with the FCA, whose guidance stresses that entities engaging in crypto-related activities falling under the existing financial regulations for derivatives (like futures and options) require authorization.
The gains and losses from cryptos are subject to capital gains tax and income tax. The U.K. tax authority, Her Majesty’s Revenue and Customs (HMRC), has specified that buying and selling cryptos will be considered the same as gambling, and the individual will be subject to capital gains tax. However, if an individual is engaged in trading of these assets, income tax would take priority over capital gains tax.
HMRC even requested that cryptocurrency exchanges hand over the names of their customers and transactions, aiming to identify cases of tax evasion, but the U.K.’s Anti-Money Laundering (AML) laws doesn’t mention crypto specifically.
However, this will change by Jan. 10, 2020 with the impending implementation of the U.K.’s Fifth Money Laundering Directive. Talking to Cointelegrpah about the current regulatory situation in the U.K., Eric Benz, CEO of the exchange Changelly, said that the regulatory framework is attempting to keep up with the emerging market, adding:
“I do think regulation is a good thing but only if done in a way, which suits this new market. Applying traditional archaic regulation to crypto simply will not work as it’s been designed in its nature to avoid regulation. There has to be a much better understanding of the market and technology on behalf of Governments not just in the U.K. but globally.”
On Aug. 24, the National Liberal Party wrote a post on its website asserting that the U.K.’s current cryptocurrency strategy is nonexistent and affirmed the government has declined to take a position on regulation.
The FCA’s proposed ban
Back in July 2018, the FCA warned that cryptos pose a huge risk to consumers who are generally misinformed about them, and recommended that products such as derivatives and exchange-traded notes that reference crypto-assets were “ill-suited” to small investors. Sukhi Jutla, co-founder of the U.K.-based blockchain platform MarketOrders, said:
“The proposed ban will be seen as a major blow and backward step for innovation in the crypto-asset space. It will also signal that despite the U.K. being the leaders in the Fintech scene, they will have effectively be compromising on this position.”
This move by the FCA follows on from a public commitment to abide by the Cryptoasset Taskforce Final Report. Even though the report recognizes that cryptos can facilitate cheaper and more efficient transactions through the elimination of intermediaries, the majority of the report portrays cryptos in a negative light. In the report, the FCA mentions that it wants to “mitigate the risks to consumers and market integrity, and prevent the use of cryptoassets for illicit activity.”
Following the report, U.K. regulators ramped up their investigations on cryptos. As a matter of fact, crypto investigations in 2019 have surged 74% in comparison to 2018, and the FCA reported that crypto investors in the U.K. lost over $34 million due to cryptocurrency and forex scams from 2018 to 2019. Many, including Changelly’s Benz, believe that the consequences of the proposed ban would clearly make the situation even worse, since crypto will always find a way around the regulations:
“The decision to not have crypto investment products I feel is not the right decision but instead, the FCA should be looking to see how best to create a regulatory framework for these businesses.”
In an open letter on their website on Sept. 23, U.K.-based digital asset management firm Coinshare claimed the FCA has not provided enough evidence to justify the proposed ban on exchange-traded notes. It urged its customers to support them in “fighting these proposals by submitting a response.”
Government brushes aside inquiries on FCA’s proposed ban
On Oct. 21, the U.K. government made it clear that deciding whether to press ahead with the proposed ban is up to the FCA. This shows that the government is not keen to take part in the ban, or at least wants to distance itself from it. Talking about the apparent disconnect between the FCA and the government, Jutla of MarketOrders said:
“I very much doubt there is transparency of communication between the Government and the FCA.”
Jutla believes that governments are not comfortable dealing with the crypto industry and therefore, the government and the FCA may not want to move in the same direction. She said:
“Both parties have opposing agendas and viewpoints. Even if the FCA is not ready to embrace crypto assets, it has a duty of care to ensure that if these products are available, protection is in place for consumers and investors.”
Considering how the U.K. has already been failing to maintain its global leadership in finance, giving up on crypto innovation will be a major blow. It seems the country should draw some inspiration from the UAE government, which recently released guidelines on how crypto assets will be treated. Even China, which was previously one of the most hostile nations to crypto, passed its first “crypto law,” going into effect in January 2020.