UK Crypto Regulation Is Changing, Recognition Looming at Long Last
Crypto regulation in the U.K. is changing for the better, but can the country truly step up its game and build a blockchain friendly ecosystem?
The United Kingdom has long been a financial mecca. Ever since the Big Bang and the arrival of Thatcherism in the ‘80s, Britain has cultivated a finance-friendly environment revolving around the city of London, with deregulation inviting a wave of foreign investment and trading activity. However, while it has even been suggested that London will overtake San Francisco as the fintech unicorn capital of the world, the U.K. has been less welcoming of crypto than it has of traditional finance.
As industry bodies like CryptoUK as well as other commentators have complained, the lack of regulatory clarity and the presence of suspicion toward cryptocurrency has been holding back the U.K.'s crypto industry. However, the situation has slowly begun to change in recent months, with the Financial Conduct Authority (FCA) updating its guidelines on cryptocurrencies, and with a series of consultations on crypto regulation due to begin toward the end of the year.
While these are only preliminary steps, they will most likely go a long way in establishing the kind of standardized, rule-bound environment that will provide investors and the general public with the confidence that crypto is safe.
Cryptocurrency and the U.K.
At the moment, the U.K. probably sits somewhere between the middle and upper ranges of the international leaderboard for cryptocurrency regulations. It hasn't produced any specific crypto-focused legislation as of yet, but it nonetheless has taken a fairly lenient approach to crypto, despite most officials having nothing but bad things to say about Bitcoin (BTC) and other digital currencies. Most obviously, it hasn't banned crypto in general or any kinds of coins/tokens (e.g., privacy coins) in particular, while it also doesn't apply any existing financial laws too stringently to cryptocurrencies.
For the most part, the U.K.’s government, the Bank of England and other institutions haven't seen it fit to come down heavily on crypto simply because none of them — at least, not until recently — have really believed that the industry has been big enough to warrant dedicated measures. For instance, Bank of England Governor Mark Carney declared in March 2018 that the market for cryptocurrencies isn't a threat to U.K. financial stability:
"At present, in my view, crypto-assets do not appear to pose material risks to financial stability. Looking ahead, financial stability risks could rise if retail participation significantly increased or linkages with the formal financial sector grew without material improvements in market integrity, anti-money laundering standards and cyber defenses.”
And just as British authorities and lawmakers haven't been particularly scared by the rise of crypto, the government and Her Majesty's Revenue and Customs (i.e., the British equivalent of the IRS) have been comfortable taxing the proceeds of cryptocurrency trading and crypto-related business according to the current tax regime.
For businesses, for example, income tax is chargeable to the profits and losses that arise from transactions involving cryptocurrencies, while the U.K. also charges capital gains tax to anyone who makes a profit via crypto trading of over 12,000 British pounds (about $14,500). Added to this, a value-added tax (VAT) is also chargeable if anyone sells goods or services in the U.K. for cryptocurrency.
Gaps and uncertainties
Still, even though the cryptocurrency industry has been able to gain an initial foothold in the U.K. within the present legislative environment, industry groups and figures believe that specific crypto-focused regulation needs to be introduced, in order to provide greater clarity and support for anyone operating an exchange in the U.K. or holding an initial coin offering (ICO). Toward the end of July, CryptoUK wrote an open letter to the newly installed Chancellor of the Exchequer, Sajid Javid, in which the trade body'