Cryptocurrency regulation in the UK: is Bitcoin legal?
Crypto regulation in the UK is rather fragmented but most Britons can buy or sell the likes of Bitcoin and Ethereum with ease
Cryptocurrency regulation in the UK is a bit of a muddy picture – and, sadly for Bitcoin advocates, it isn’t always an optimistic one either.
In a word, British crypto regulation is rather fragmented. The Financial Conduct Authority (FCA) has a very limited remit for what it supervises in this industry – and its powers only came into force in January 2020.
The FCA is now responsible for monitoring crypto businesses to ensure that they are complying with measures surrounding anti-money laundering and counter-terrorist financing. However, the body has stressed it isn’t responsible for scrutinising how exchanges treat their customers – and that it cannot help if client funds are inadequately protected.
This rather restricted purview hasn’t stopped the FCA from making its feelings about crypto assets known. On its website, the regulator warns digital currencies are “very high risk, speculative purchases” – with a marketplace that’s regularly a target for fraudsters and scammers.
But what’s the current state of cryptocurrency law in the UK? Is legal or illegal? How is Brexit affecting attitudes towards Bitcoin regulation – especially considering that the European Union is heading down a different path? Here, we’re going to provide an at-a-glance guide to where things currently stand.
Attitudes towards cryptocurrency regulation
Before we delve into the current state of Bitcoin regulation, it’s worth turning our attention to the Bank of England, which despite its name is the central bank for the whole of the UK.
It’s fair to say that Mark Carney, whose seven-year tenure as Bank of England governor ended on March 15, has been wary of cryptocurrencies at times. In 2018, he warned the likes of Bitcoin could pose a threat to financial stability – and even though he stopped short of calling for an outright ban, he called for such assets to be held “to the same standards as the rest of the financial system”.
That said, there have been times of late when Carney has suggested cryptocurrencies have potential. Surprisingly, he was quite vocal in his support for Facebook’s controversial Libra stablecoin. Last October, he criticised how expensive it often is for businesses and consumers to make transfers – not to mention how long it takes. Carney suggested that it was understandable that private firms were getting involved in fintech given the glacial speed of progress by established competitors.
But – and a big but – Carney stressed that cryptocurrency regulation was nothing short of essential. He also cautioned that appropriate measures needed to be established before coins such as Libra hit the mainstream, and was quoted as saying: “This will not be like social media. This will not be a case where something gets up and starts running and the system tries to work out after the fact how it’s regulated. It’s either going to be regulated properly, overseen properly, or it’s not going to happen.”
Last summer, Carney also said that a digital currency not dissimilar to Libra could have the potential to replace the dollar as the world’s reserve currency – something with which the US Federal Reserve is unlikely to be thrilled. Nonetheless, he clearly believes that there are many hurdles that lie ahead. In one of his final acts as Bank of England governor, Carney warned that launching a central bank digital currency in the UK wouldn’t be easy – and could raise “significant challenges for maintaining monetary and financial stability”. As a result of this, he said any such digital asset would need to be “carefully designed”.
Let’s compare and contrast Carney’s attitudes towards crypto regulation with those of his successor Andrew Bailey, who was also formerly chief executive of the Financial Conduct Authority. This is an exercise that could help us read the tea leaves and deduce whether or not Bitcoin regulation in the UK is on the horizon.
Bailey has repeatedly been on the record stating that he believes BTC is not a currency. He doubled down in remarks at a British parliamentary committee shortly before he replaced Carney. Leaving little room for nuance, he told MPs: “If you want to buy Bitcoin, prepare to lose all your money.”
He does have a track record for crypto scepticism, and this may not bode well with those who want the UK to embrace a more progressive attitude towards Bitcoin regulation. During an interview with the BBC in December 2017, Bailey said of BTC: “It’s a very volatile commodity in terms of its pricing… and I would caution the people we know relatively little about what, in a sense, forms the price of Bitcoin. It’s an odd commodity as well because the eventual supply is fixed.”
It doesn’t take someone with a PhD in economics to deduce that Bailey’s stance is bad news. Aggressive cryptocurrency regulation is a very real and present threat – and this could stymy growth in this industry. But is Bitcoin legal at the moment?
Is cryptocurrency legal in the UK?
In a word… yes. Cryptocurrency regulation has been very kind to consumers, meaning that the likes of Bitcoin and Ethereum can be purchased with ease. As with other developed countries, the main focus has been on preventing crypto from being used to finance terrorism or launder money.
Many major exchanges have their very own UK operations – albeit users do face restrictions on how much crypto they’re able to purchase depends on the Know Your Customer checks they have completed. This can include submitting photo identification such as a passport or driving licence. The UK has a so-called Financial Services Compensation Scheme, and this protects customers to the tune of up to £85,000 if their savings are lost as the result of a bank or financial service provider collapsing. This protection does not extend to crypto exchanges.
Crypto companies that apply to register with the FCA need to provide that they “take seriously their responsibilities to prevent their business being used to launder the proceeds of crime.” However, the FCA hasn’t been afraid to show its teeth on cryptocurrency regulation when it believes an exchange has been offering products that should be regulated. One prime example came a couple of weeks ago, when the FCA issued a warning about BitMEX – one of the world’s biggest exchanges. It said: “This firm is not authorised by us and is targeting people in the UK. Based upon information we hold, we believe it is carrying on regulated activities which require authorisation.”
As you can see, the issue of cryptocurrency regulation in the UK is a complicated one. There are many matters that are yet to be addressed – and some areas that fall into a black hole where there’s no oversight. It remains to be seen whether or not the country will step up regulatory activity in the coming years, and whether this will take the shape of guidelines that are designed to nurture or neuter the industry.
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