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Blockchain & Cryptocurrency Regulation | United Kingdom

Although still actively developing, current UK policy thinking in relation to cryptocurrencies was set out by the UK Cryptoassets Taskforce in its Final Report1 (the “Taskforce Report”), published in October 2018.

The Taskforce Report identifies cryptocurrencies as a subset of the broader category “cryptoasset”. It defines the latter as “a cryptographically secured digital representation of value or contractual rights that uses some type of [distributed ledger technology] and can be transferred, stored or traded electronically”.

Within this overarching category, the Taskforce Report identifies three sub-categories and offers the following (non-legislative) definitions:
  • Exchange tokens
    which are often referred to as ‘cryptocurrencies’ such as Bitcoin, Litecoin and equivalents. They utilise a [distributed ledger technology] platform and are not issued or backed by a central bank or other central body. They do not provide the types of rights or access provided by security or utility tokens, but are used as a means of exchange or for investment.
  • Security tokens
    which amount to a ‘specified investment’ as set out in the Financial Services and Markets Act (2000) (Regulated Activities) Order […]. These may provide rights such as ownership, repayment of a specific sum of money, or entitlement to a share in future profits. They may also be transferable securities or financial instruments under the EU’s Markets in Financial Instruments Directive II.
  • Utility tokens
    which can be redeemed for access to a specific product or service that is typically provided using a [distributed ledger technology] platform.”
Although UK financial regulators have issued warnings in relation to investment in cryptoassets,4 they are not subject to a blanket prohibition or ban in the UK. However, as indicated by the definitions set out in the Taskforce Report, some will be subject to financial regulation (see Cryptocurrency regulation below). The UK anti-money laundering (“AML”) regime has also been extended to capture activities relating to most cryptoassets (including cryptocurrencies), regardless of whether they are otherwise subject to financial regulation (see Money transmission laws and anti-money laundering requirements below).
Despite publication of the Taskforce Report, UK policy towards cryptocurrencies is still developing. In particular, the authorities making up the Taskforce are continuing to conduct further substantive work in relation to cryptocurrencies. For example, the UK Financial Conduct Authority (“FCA”) consulted on and published regulatory guidance in relation to cryptoassets (including cryptocurrencies) (the “FCA Guidance”). It has also recently consulted on a proposed ban on the sale, marketing and distribution of derivatives and exchange-traded notes referencing cryptoassets (including cryptocurrencies) to all retail consumers. The FCA had expected to implement rules relating to the retail ban in Q2 of 2020; however, owing to COVID-19, it delayed the implementation to the second half of 2020. At the time of writing, HM Treasury is also consulting on changes to the UK financial promotions regime with a view to bringing otherwise unregulated cryptoassets (including cryptocurrencies) into scope (see Sales regulation below).
Cryptoassets (including cryptocurrencies) are not considered money or equivalent to fiat currency in the UK. For the time being, the Bank of England has not made a decision on whether to introduce a central bank digital currency, and has launched a discussion paper on what such a central bank digital currency would look like.

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