Regulation of Cryptocurrencies in the UK

The FCA, also known as UK’s Financial Conduct Authority, has warned users severally concerning cryptocurrencies. However, from what we have witnessed over the past few years, it’s clear that cryptos are here to stay.

Cryptocurrencies were made possible because of blockchain technology. The same technology behind today’s financial ecosystem supports faster transactions and payments.

However, according to the FCA, there has been an increase in cryptocurrency investments. This comes amid increased market volatility and poor saving rates in the UK. Being the bearer of these facts, the FCA has taken it upon itself to regulate the crypto market in the best possible way.

In this article, we’re going to highlight how regulation will affect the UK’s crypto market. Let’s dive in.

Is the Crypto Market Regulated?

Generally, cryptocurrencies are pretty different from other financial products; thus, they aren’t regulated. Unlike owners of financial products such as savings, pensions, and mortgages, crypto holders cannot benefit from the protection offered by the Financial Services Compensation Scheme (FSCS). With this scheme in place, they are guaranteed safety, plus they have a platform on which they can submit their grievances.

However, with cryptocurrencies, there is no such scheme. More, since cryptocurrencies are not regulated, the chances of being scammed are very high. This can be through the sale of a fake project or theft; either way, the FSCS has no way of protecting you.

One important detail to note is that since the founders of different cryptocurrencies are spread worldwide, it’s improbable that they will treat all holders equally. In addition, since these founders are based around the world, it’s almost impossible to regulate them.

Are Cryptos Taxed?

As much as they are not regulated, taxation for crypto is inevitable. This is because the government will likely tax your returns from your crypto investments. Typically, crypto investors might be required to pay capital gains tax as soon as they sell, exchange or dispose of their crypto holdings.

Today, every individual in the UK has a capital gain allowance of £12.300 and £6,150 for trusts. This allowance is given annually before paying any tax.

Suppose you earn more money from your crypto assets; you will be forced to pay the capital gain tax. You can use losses from other (crypto) investments to reduce your gain and tax bill. You might also be required to pay tax on tokens you mine if they are valued at more than £1,000. Still, if your salary is paid in cryptocurrencies, they are considered readily convertible assets by the government. Therefore, they are liable for taxation.

Cryptocurrencies in the UK

As discussed above, regulation of crypto in the UK is almost impossible. However, the FCA has managed to impose restrictions on buying and trading crypto. All the crypto exchange firms in the UK are forced to register with the FCA for money laundering. FCA will only register these firms on the condition that they will be able to identify criminal activities.

Even though this isn’t the most effective form of protection offered by the FCA, it goes a long way regarding crypto regulation. As expected, there have been clashes between the FCA and several crypto firms. A good example was when FCA disagreed with Binance’s business model but later settled their differences.

The impact regulation will have on crypto depends on how far the FCA is willing to go. Some countries, such as China and Russia, have been tempted to resort to extreme measures, such as banning cryptocurrencies in their territories. A move in this market will have a substantial negative impact. The most logical move would be to impose regulation on cryptocurrencies.

Regulation not only helps combat criminal activities but also boosts user confidence. However, the FCA must know where to draw the line as too much intrusion might push investors away, ultimately ushering the market a death note.

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Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice