Cryptocurrency is recently one of the most popular notions. Cryptoassets cover many different products, but the most commonly used Cryptoassets types are Bitcoin, Litecoin, Ether, etc. These are designed to be used as a method of payment. Cryptocurrency like Bitcoin is regulated in the UK only for money laundering purposes. In the UK, the Financial Conduct Authority (FCA) assumed oversight of the cryptocurrency's anti-money laundering (AML) and counter-terrorism financing (CTF) activities. This is why UK crypto exchange operating needs to be FCA registered, except that some crypto assets services can obtain e-licenses instead of registering for FCA.
Money Laundering and Crypto Currencies the UK
In the UK, the FCA must be authorized to operate an exchange that enables trading crypto-assets, which are financial instruments under the Markets in Financial Instruments Directive II (MiFID II). Businesses authorized by FCA must comply with FCA's crypto assets. Bitcoin regulations are an example of these crypto assets. In the UK, consumers can easily buy crypto asset products like Bitcoin. The most important factor in buying and selling crypto assets is to ensure that cryptocurrencies are not used to finance terrorism or money laundering. Therefore, crypto businesses have to register with FCA regulations. Cryptocurrency companies applying to register with FCA have taken their responsibilities seriously to anti-money laundering criminal proceeds in firms.
It controls its customers who buy and sell currencies with Know Your Customer (KYC) procedures in many Crypto businesses in the UK. KYC can provide businesses with information such as customer IDs, passports, driver's licenses, photos. So, KYC represents the process in which the customers' identities are determined within the scope of the regulations in crypto. Likewise, with the Customer Due Diligence (CDD) procedures, customers' risks are determined, and precautions are taken according to these risks. Such measures are aimed at anti-money laundering and terrorism financing in crypto businesses. However, cryptocurrency bitcoin regulation in the UK is very complex, and many other issues need to be addressed.
What Are the Requirements of Regulations for Crypto Businesses?
FCA has introduced some arrangements to reduce and eliminate money laundering risks in trading UK crypto exchanges in the UK. At the heart of FCA, regulations are businesses identifying and evaluating risks related to AML and CFT and developing policies and controls to eliminate these risks. KYC and CDD procedures should be carried out in businesses to identify and evaluate these risks. FCA regularly checks whether crypto businesses comply with KYC regulations.
FCA also stated that it would take quick action when businesses cannot reach the crypto sector's desired standards and risk market integrity. In January 2020, the FCA introduced new regulatory powers that allow crypto-asset businesses to control how they manage the risk of money laundering and counter-terrorism financing. However, these powers do not control how crypto-asset businesses conduct business with consumers, meaning the FCA is not responsible for ensuring that crypto-asset businesses protect and not control client assets.
Crypto Assets Taskforce in The UK
Whether current financial regulations apply to cryptocurrencies depends on what the cryptocurrency is used for. The Cryptoasset Taskforce was established in the UK in March 2018 to detect these situations. The Cryptoasset Taskforce creates a chart showing the widespread uses of cryptocurrency and whether the use is within the current scope known as the "regulatory environment." According to this table, it was announced that crypto assets could be used in three different ways. These are as follows:
- Use as a barter: function as a decentralized tool to enable trading goods and services or facilitate regulated payment services.
- Use for investment: obtaining indirect risk by holding and trading crypto assets for direct exposure firms and consumers.
- Supporting capital increase and/or creation of decentralized networks through Initial Coin Offerings (ICOs).
The Cryptoasset Taskforce, cryptocurrency operators, used as an exchange tool, must comply with regulators under the Payment Services Regulations 2017 (PSR) if the cryptocurrency is considered a fiat fund. Also, direct investments in crypto assets fall under the regulatory framework only if they are a security token.
Tax on Crypto Assets in The UK
According to the holder, HM Revenue & Customs tax crypto assets like bitcoin. Also, Income Tax will be applied to the commercial earnings of those engaged in trade. So HMRC uses two separate tax systems for individuals and businesses trading crypto assets. HMRC first announced tax treatments for Cryptocurrencies in the UK in 2014. Afterward, HMRC updated its first tax guide. According to HMRC, Bitcoin and other cryptocurrencies are crypto assets, and these currencies are not taxed in the same way as built-in currencies. Besides, HMRC stated in the guide published in 2018 that there are three different types of crypto assets; utility tokens, security tokens, and exchange tokens.
On November 1, 2019, HMRC published a Policy Paper outlining its position regarding taxation transactions undertaken by businesses involving 'exchange tokens.' On December 20, 2019, it issued a similar Policy Paper that updates its guidance on bitcoin's crypto tax for individuals. Also, HMRC states that it will address the processing of utility and security tokens in future guidance and summarizes this situation as follows:
- The value of exchange tokens is based on their use as a medium of exchange or investment.
- Securities tokens can benefit the owner, such as the business's debt from a business or a dividend in the business.
- Utility tokens allow the owner to access specific products or services on a platform, often using distributed ledger technology. For example, a business will issue tokens and accept tokens as payment for those specific goods or services.
- Exchange tokens are crypto assets, a new type of intangible asset intended to be used as a payment method.
Sanction Scanner Solution for Cryptocurrency
Nowadays, Cryptocurrencies are more and more in our lives. The development of the crypto industry brought along its regulations in this sector. With Sanction Scanner AML Solutions, crypto businesses can easily comply with local or global crypto regulations. Crypto Operations have to implement AML regulations and controls. It automates the AML compliance processes of the UK crypto exchange with Sanction Scanner's powerful and flexible API support. Besides, crypto businesses can offer customers an excellent experience while reducing false positives and manual transactions with our API support.
During customer account opening, organizations serving in the crypto industry must fulfill their AML and KYC obligations. Crypto exchanges can scan customers' on Sanctions and PEP lists from more than two hundred countries. In this way, with Sanction Scanner, crypto businesses can comply with regulations and be protected from regulatory penalties. Contact us for detailed information.
AML Compliance For Crypto Exchange - Eksit.com