Crypto License in the United Kingdom

Crypto-authorization process in the United Kingdom Virtual Currency Registry

Though the crypto authorization process in the United Kingdom isn’t standardized, it is straightforward. As a UK company successfully acknowledges and fulfills all of the stated requirements from the Financial Conduct Authority, it can apply for a UK crypto license.

The registration of the United Kingdom Company in the Register of cryptocurrency companies

To register a United Kingdom company in the register of cryptocurrency companies, the board must contact the Financial Conduct Authority. Done through an online platform, the application process requires, first and foremost, to be identified with a Firm Reference Number (FRN) and Individual Reference Number (IRN).

Secondly, the firm shall have organized its board in a manner that satisfies the expectations of the regulator. That means that the adequate number of people with the rightful qualifications, fitness and property, have been assigned to key positions within the crypto company.

Finally, the operational level should be ready for demonstration. This means that the software part of the project can be explained in detail, especially the parts related to customer onboarding and verification, data protection, and risk assessment. In parallel, the whole scheme of operation must be compliant with the AML-CFT laws of the United Kingdom.

Governmental Statements on Crypto in the United Kingdom

The United Kingdom has adopted an open-minded, though careful, mindset when first approaching the topic of cryptocurrency. The Financial Conduct Authority has issued surveys and conducted its own research before publishing its methodology and results to the public.

In recent developments, the government was interested in the assessment of security tokens as qualifying crypto assets into the scope of the Financial Services and Markets Act of 2000, meaning that it would be regulated as a financial instrument.

Following up on a consultation conducted in 2020 and a task force created in 2018, the government explained how security tokens are subject to the law on financial instruments while leaving room for exemptions and detailing why and how a security token could be exempted from qualification.

Requirements for companies engaged in crypto activities in the United Kingdom

The requirements to secure a crypto license in the United Kingdom are set by the Financial Conduct Authority. The FCA considers each project on a case-by-case basis, meaning that part of the assessment is subjective, and the applicant shall rely on common sense.

Concretely speaking, that means setting the operations in an honest and safe way for all parties involved. The FCA provides guidelines on that matter with their requirements:

• Fitness and property of every UBO, manager, and officer involved in the company;
• Full compliance with the Money Laundering Regulations of the UK;
• A board member or nominated officer responsible for enforcing compliance with the regulations (especially AML/KYC).

To help applicants with their filing, the FCA has published a notice on what constitutes a good application for the crypto license in the UK. The notice details everything that an applicant should know and prepare before starting the process.

Among other things, the main requirements are as follows:

• Appointment of an AML officer;
• Detailed business plan;
• Compliant policies, systems, and means of control;
• Compliant risk assessment measures;
• Detailed scheme of activity.

It takes up to 3 months for the Financial Conduct Authority to give a response to an application.

The process of setting up a company for a cryptocurrency business in the United Kingdom

Company formation in the United Kingdom is known to be very simple. Many entrepreneurs in the world have set up shop in the UK using Limited Liability Companies and Limited Partnerships, as they bear many advantages.

Though things have changed a little on the regulatory side, the United Kingdom is still a business-friendly country, and the incorporation of a company is no hassle.

What matters to cryptocurrency businesses is that incorporation is by far the easiest part of the process. Once the company is registered, the bread and butter of the crypto business will be to comply with all the requirements and expectations set by the FCA before applying for the license.

Note that a Limited Partnership cannot secure a crypto license in the UK.

Taxation for cryptocurrency companies in the United Kingdom

Her Majesty’s Revenue & Customs board has published manuals pertaining to the taxation of cryptocurrency companies in the UK. It clarifies how cryptocurrency activity and revenue are treated at the taxation level and which taxes apply.

As other businesses in the United Kingdom, cryptocurrency companies are liable to the following taxes (among others):

• Capital Gains Tax (CGT);
• Corporation Tax (CT);
• Corporation Tax on Chargeable Gains (CTCG);
• Income Tax (IT).

The Corporate Income Tax in the United Kingdom has been 25% since April 2023 for domestic companies.

Obligations for crypto companies in the United Kingdom

A crypto company in the United Kingdom has the obligation to cooperate with the regulatory authorities in order to protect customers and market participants.

These obligations are therefore set on various levels pertaining to the company and its crypto activity: on the corporate level, the legal level, and the operational level.

Crypto businesses in the UK are required to:

• Assess, manage, and mitigate the risks of money laundering, proliferation financing, and terrorist financing;
• Enforce policies, system,s and controls on that matter;
• Employ a full-time AML officer on duty for monitoring and reporting suspicious activities to the National Crime Agency;
• Set up an internal audit function, whose role is to examine and evaluate the adequacy and effectiveness of the policies, controls, and procedures, adding recommendations if deemed necessary;
• Assess the background of its employees;
• Perform customer due diligence (“Know Your Customer”) when beginning a new business relationship;
• Apply enhanced due diligence with clients presenting a higher risk profile and/or are politically exposed;
• Monitor customer activity and assess consistency of a customer’s activity with its profile (and report if necessary).

On a yearly basis, crypto businesses must submit a financial crime report and may be asked to provide further documentation pertaining to their compliance policies and procedures.

Sanctions for violating the United Kingdom crypto-business obligations

Running a crypto business in the United Kingdom without a license or breaching the law as a licensed crypto company will lead to severe sanctions.

Since it would be considered simultaneously facilitation of financial crime and neglecting consumer protection, a malevolent company shall expect to be banned, the license revoked, and the participants sanctioned with fines and possibly imprisonment for the most extreme cases.

This further emphasizes the requirement for a strong legal backbone when preparing and setting up a licensed crypto activity in the United Kingdom.