Crypto License in the United Kingdom

Cryptocurrency businesses have been declared legal in the United Kingdom after careful analyses were conducted by the Financial Conduct Authority (FCA).

Starting from 2017, the regulator in the UK conducted several surveys and research on how cryptocurrency markets function, how they qualify, and subsequently, how they should be regulated.

A careful look has been given into the matter before deciding whether cryptocurrency business should be made legal or not in the United Kingdom. By the end of 2019, the FCA decided to allow cryptocurrency activity on the soil of the UK, provided companies would get registered and authorized.

The FCA crypto license was made available for application from the 10th of January 2020. More than 300 projects have applied for the crypto license in the UK since then, with about 15% of them getting authorized successfully.

Cryptocurrency regulation in the United Kingdom

The cryptocurrency regulation in the United Kingdom rests on two pillars: the FCA authorization and the AML-CFT laws.

The Financial Conduct Authority regulates crypto businesses and sets its subjective criteria for assessing applicants. It has been made clear that it wasn’t just about paying the licensing fee and checking a few boxes: the FCA can and will conduct an analysis of the business model and a review of all its participants before making a decision.

On the other side, UK crypto companies have to comply with UK laws. Principally, the Money Laundering, Terrorist Financing and Transfer of Funds Regulations of 2017 is the backbone of the compliance framework that applies to virtual asset service providers.

Other domestic regulations can or may be relevant to crypto companies in the UK: the Electronic Money Regulations of 2018 for issuing e-money and the Financial Services and Markets Act of 2000 for issuing security tokens are common examples.

The United Kingdom Virtual Cryptocurrency Registry

The United Kingdom Cryptoasset Registry lists all the existing authorized companies registered in the UK and authorized by the FCA.

The register includes information such as the company name, registration number, address, date of authorization, a contact phone number, and email address. Each company has a dedicated page in the registry that includes consumer and legal information.

The register includes, for example, additional licenses and permissions held by the company. It explains what this company is allowed and not allowed to do based on the activities they registered for with the FCA.

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.

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.

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.

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.

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.

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.

The crypto license in the United Kingdom was introduced in January 2020. It is one of the most sought-after licenses, thanks to the very high reputation of the United Kingdom and its financial and legal institutions.

Dozens of major players in the crypto world have successfully secured a UK VASP license, benefiting from a strong and qualified workforce and a clear framework. Supervised by the Financial Conduct Authority (FCA), crypto businesses in the United Kingdom are able to provide a wide range of digital asset-related services.

Both the government and the regulator have communicated profusely on the matter of doing business with cryptocurrency. The communications from the FCA include guidelines issued at the attention of cryptocurrency companies. These guidelines form one of the two main parts of the crypto regulation in the United Kingdom.

The second part is about combating financial crime through the enforcement of Money Laundering, Terrorist Financing and Transfer of Funds Regulations of 2017 and other potentially relevant laws, depending on the business model of the company. Enforcing these laws means having proper policies, systems and controls (sic) on the topics of Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT), and performing customer due diligence in the frame of the “Know Your Customer/Business” (KYC/KYB) practices. Cryptocurrency isn’t considered legal tender in the United Kingdom.

Successfully obtaining a crypto license in the United Kingdom is a straightforward process thanks to streamlined guidance by the regulatory authorities. The licensing process, excluding incorporation and preparation of the application, takes about 3 months to complete.

A company has to be registered in the United Kingdom first. It must have an office and an appointed board, which shall all be considered fit and proper (an assessment will be conducted during application).

An AML officer shall be appointed by the company, whose competence will be assessed as well by the regulator. The officer can be a board member of the company and is not required to be a resident or citizen of the United Kingdom.

Licensed companies in the United Kingdom can open a domestic bank account for their operations. To successfully get licensed in the United Kingdom, a project shall prepare all the necessary documents, including but not limited to: A detailed business plan, including a scheme of operations and software MVP; Policies, systems, and controls relevant to AML-CFT laws, to customer due diligence, to cybersecurity, to consumer protection, and to data protection; Relevant information and documents pertaining to every founder, manager, and officer of the company (in the frame of the fit and proper assessment).

The crypto license in the United Kingdom, officially called “Registration as a Cryptoasset Business” by the Financial Conduct Authority (FCA), can be described as a “custom license”. The FCA takes an individualized approach to each project.

Defining the planned activities and services to be provided is done before the application. The FCA then assesses if it will authorize the activity or not. Therefore, there aren’t different kinds of licenses in the United Kingdom, as every crypto license in the UK is delivered after an individual assessment of the project.

In theory, this allows for virtually every business model involving crypto assets. In practice, some activities may touch on other laws and regulations, and you need to take them into consideration.

One noteworthy example concerns security tokens. These assets can enter the frame of the Financial Services and Markets Act of 2000 or be exempted from it, depending on the regulator’s decision.