Jasmine Birtles
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Laws and Regulations Guiding Crypto Investments in the UK
Moneymagpie Team
6th May 2025
The UK’s cryptocurrency landscape is rapidly improving, with increasing participation from both retail and institutional investors. The crypto sector has seen a major boom, with an estimated turnover of about £12.1 billion. Amidst this growth, the UK government has been establishing itself as a global hub for crypto investing, and this attracts the need for a robust legal framework to ensure investor protection. Let’s take a dive into the legal side of crypto investing in the UK.
- Current Legal Status of Cryptocurrency in the UK
- Key Legal Definitions
- The UK’s Emerging Regulatory Framework
- New Consumer Protection Measures
- Compliance Guidelines for Crypto Businesses
- Tax Implications of Crypto Investing
- Evolving Regulatory Landscape in the UK
Current Legal Status of Cryptocurrency in the UK
In the UK, cryptocurrency is legal but not recognised as a legal tender. This means that while individuals can legally buy, hold, and trade crypto assets, these assets cannot be used for legal payments like fiat currencies. Cryptocurrencies fall under broader financial regulations, depending on how they are used.
The UK’s main financial regulator is the Financial Conduct Authority (FCA), which requires all crypto exchanges and wallet providers to register and comply with the anti-money laundering regulations.
As crypto trading becomes more popular, engaging about 12% of the UK adult population, it’s important for investors and businesses to understand the legal regulations associated with the crypto market.
Key Legal Definitions
Under the amended Financial Services and Markets Act 2000 (FSMA), crypto assets are defined as: ‘Any cryptographically secured digital representation of value or contractual rights that can be transferred, stored, or traded electronically, and uses technology supporting the recording or storage of data.’
This broad definition allows regulators to focus on the wide range of assets and technologies within the crypto ecosystem. What’s more, the HM Treasury identified four main categories of crypto assets. These are:
- Security Tokens, which resemble traditional securities.
- Exchange Tokens, like Bitcoin, are used mostly as a medium of exchange.
- Utility Tokens grant access to applications or services.
- Non-Fungible Tokens (NFTs) are unique digital assets that are non-interchangeable.
The UK’s Emerging Regulatory Framework
Although crypto assets are lightly regulated, the UK government has been active in building a more comprehensive regulatory regime. In February 2023, HM Treasury launched a consultation and asked for evidence on the future financial service’s regulatory regime for crypto assets. This started the beginning of formal regulation.
Some of the main developments include:
- 2023 Financial Promotions Regime: This introduced strict rules for crypto marketing. Promotions must be fair, clear, and not misleading. Firms promoting crypto assets need to be authorised by the FCA or by authorised firms.
- Regulation by Activity: Crypto firms must register with the FCA under the Money Laundering, Terrorist Financing, and Transfer of Funds Regulation 2017.
- Regulation by Asset Characteristic: Some crypto assets might fall under the Regulated Activities Order if they exhibit features of traditional financial instruments.
The UK seems to be moving opposite from the EU’s MiCA regulations that became fully effective in December 2024, integrating crypto into existing financial laws.
New Consumer Protection Measures
The FCA has proposed different new rules to ensure investor safety, reflecting growing concerns around speculative investment. Some of the latest crypto laws for investors to keep in mind include:
- Ban on Crypto Purchases via Credit Cards: To reduce the risk of overleveraging, the FCA has proposed to stop retail investors from using borrowed funds to buy cryptocurrencies and other related assets, such as their credit card balances.
- Restrictions on Crypto Lending and Borrowing: Crypto lending has become a popular action among investors but there are risks, like the loss of ownership, liquidity issues, and insufficient creditworthiness assessments. The FCA is adding new regulations for stricter vetting of customers’ financial knowledge before they can borrow crypto.
- Transparency of Staking: The UK seems to improve customer knowledge of staking, where users lock up their tokens for network participation in exchange for reward. A recent survey revealed that 27% of UK crypto holders participated in staking.
Compliance Guidelines for Crypto Businesses
For crypto-related businesses operating in the UK, compliance with current regulations is non-negotiable to protect investors.
For one, businesses are expected to focus on transparency. They need to inform customers of the risks involved in crypto investments. Even if certain assets are outside the FCA’s regulatory scope, firms are expected to align with FCA guidance on financial promotions.
Also, registering with the FCA is mandatory, and they must implement money laundering compliance controls to prevent financial crime. These include Know Your Customer (KYC) and Anti-Money Laundering (AML) checks. Investors should avoid dealing with platforms under the FCA’s Unregistered Cryptoasset Business page.
Proper due diligence is important, especially when handling large volumes of crypto or engaging in cross-border transactions. Some platforms lack transparency and customer protections, so retail and institutional investors need to check properly and carry out comprehensive audits.
Tax Implications of Crypto Investing
The tax treatment of cryptocurrency and related assets in the UK falls under Capital Gains Tax. Investors may be liable for capital gains tax when they sell or dispose of their crypto for profit. You need to pay taxes when you exchange one crypto asset for another, use crypto to pay for goods or services, and gift crypto to another individual.
Additionally, DeFi activities, such as staking and lending, are under increasing scrutiny from HMRC. Investors need to keep meticulous records of all transactions, including dates, amounts, and types of assets involved, to comply with tax obligations.
Evolving Regulatory Landscape in the UK
Crypto investing in the UK is legal, accessible, and growing, but it exists within a dynamic and rapidly evolving regulatory landscape. Whether you’re a casual investor or a crypto entrepreneur, it’s important to stay updated with legal developments and ensure compliance with current regulations.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.
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