On October 8, 2023, the Financial Conduct Authority (FCA) brought into effect a new regulatory regime for cryptocurrencies across the United Kingdom.
The financial watchdog’s policy guidelines outlined a set of rules and regulations that require crypto asset service providers to include appropriate risk warnings in all communications that include promotional elements to customers in the country.
Firms wishing to provide crypto-related services in the county to retail customers, must, by law, be authorized or registered by the FCA, or have their marketing strategies approved by a company authorized by the financial regulator.
According to the guidance, crypto assets that claim to be backed by a commodity will need to prove their case. Companies can provide evidence through disclosures, independent audits, and proof of deposits.
The firms will also need to demonstrate that claims of stability, such as links to a fiat currency, are “bona fide”, said the FCA.
In the case of financial promotions related to lending, there are specific risks that should be disclosed to potential clients. Additionally, complex yield models need to have clear evidence regarding potential rates of return.
The FCA also wants crypto firms to clearly state changes made to legal and beneficial ownership of assets to customers. Firms will also need to conduct due diligence on both the crypto asset and service they are promoting, which also includes ensuring the crypto is not linked to fraudulent activity.
What are the FCA’s Guidance for Crypto Firms?
The financial watchdog’s guidance for regulated firms marketing cryptocurrency products includes:
- A ban on providing incentives to invest in their products and services
- A 24-hour “cooling off period” for first-time investors
- Crypto promotions must be in clear language, fair, and should not be misleading to investors
- All promotions must be labeled with prominent risk warnings
- Crypto firms should not use their regulatory status in a promotional way
Which Crypto Firms Are Registered With The FCA?
Here is a list of crypto exchanges registered with the FCA
The regulator also produced a list of 221 crypto platforms that UK investors must avoid as they are not registered. Huobi’s HTX and KuCoin exchanges are among the companies that failed to receive FCA approval and users have been warned to stay away from them.
What Crypto Assets Are Banned in the UK?
Since cryptocurrencies themselves aren’t regulated, there are no outright bans on the digital assets. However, the FCA has issued guidance to exchanges to delist certain privacy coins like Monero (XMR). these tokens can obscure transactions and pose the risk of being used for illicit activities like money laundering, terrorist financing, or tax evasion.
All FCA-registered cryptocurrency exchanges have to adhere to anti-money laundering and counter-terrorism financing rules and are therefore unlikely to offer privacy tokens like Monero to their customers.
How is Crypto Taxed in the UK?
Cryptocurrencies are viewed similarly to stocks and are also taxed in the same manner. That means all crypto assets are taxable under UK law. Moreover, cryptocurrencies may be subject to both Capital Gains Tax and Income Tax depending on the specific transaction the users were involved in.
