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Who does not talk about crypto assets these days? The most popular ones are of course Bitcoin, Ether, Litecoin, etc. Their main assignment is being a payment method. The key purpose of regulating them in the UK is the prevention of money laundering. Such activities as anti-money laundering regulations and counter-terrorism financing initiatives in the United Kingdom are overseen by the FCA, the Financial Conduct Authority. The FCA demands the crypto exchanges to obtain registration or e-licenses depending on each case.
According to British legislation, crypto assets are financial instruments that fall under the regulative category of the Markets in Financial Instruments Directive II (MiFID II). Thus, businesses that work with crypto assets in the UK must be authorized by FCA and fulfill its conditions to function. Buying or selling crypto in the United Kingdom is not complicated by any means, yet it must be assured that these assets are not used for laundering money or for financing terrorism.
One of the key mechanisms of control is called Know Your Customer (KYC), which obliges crypto businesses in the UK to keep track of their customers that buy or sell currencies. Thanks to KYC businesses are provided with customer’s identification documents and photos. The next procedure, Customer Due Diligence, helps businesses to determine risks and precautions related to each customer. These are the main areas of focus, but the UK has other issues to address, too.
As mentioned earlier, KYC and CDD procedures are considered critical when it comes to regulating crypto businesses. Regularly, the FCA runs check-ups to ensure that businesses follow the rules righteously. Moreover, in 2020, the FCA introduced specialized powers dedicated to monitoring how businesses manage the risk of terrorism financing and money laundering. Nevertheless, they are not focused on managing control of client protection provided by businesses.
The crypto regulations do not apply identically to every type: the use purpose of cryptocurrencies defines whether it is regulated or not. To detect and judge each case the Crypto Asset Taskforce was created in the UK. Their responsibility is to form a chart that would demonstrate all kinds of crypto uses and define which of them fall under the regulations. Based on the table, cryptocurrencies can be divided into three categories:
Overall, cryptocurrency falls under the Payment Services Regulations (PSR) if it is considered a fiat fund. In addition, the regulatory framework is also applied if crypto assets are security tokens.
Depending on the holder, HM Revenue & Customs applies taxes to crypto assets. Besides, the commercial earnings from trade are also subject to Income Tax. For the first time, HMRC announced crypto-asset taxing in 2014. Since those times, HMRC has been continuously updating the tax guide that differentiates various types of crypto assets (utility, security, exchange tokens) and has a different approach to taxing individuals and businesses.
Interested in the topic of establishing a crypto exchange in the UK and need additional consultation? COREDO is here to professionally assist you. It only takes one call or one message to contact us.