Cryptocurrencies are beginning to be regarded as an emerging asset class in the UK. Portfolio managers and financial advisers have yet to class cryptocurrencies as ‘investment grade’, but the financial services sector is quickly re-modelling itself around this burgeoning financial market and new technology.

The last decade has seen the incorporation of several cryptocurrency exchanges, such as Coinbase, Binance & In recent years, as the volume of trading on these platforms has grown, and these exchanges have come under incredible scrutiny by the local press and the UK’s financial regulator the Financial Conduct Authority.

As these companies rush to professionalise their internal controls and processes, questions are being raised by lawmakers. Politicians and the Bank of England governors have wondered publicly whether they should be treated like a regulated stock exchange or a bank.

This article will explain the legal quagmire that Crypto institutions currently reside in. We’ll set out the latest UK rules at the date of timing and how different crypto businesses have responded to legal challenges so far in their development.


Is crypto regulated in the UK?

The best place to start is to ascertain whether the underlying crypto coins themselves are regulated investments in the UK.

Cryptocurrency as an investment is not currently regulated. This means that the Financial Conduct Authority does not provide oversight over the financial markets or brokerage accounts that purely exist to hold crypto. Examples of other investments which don’t fall under the watchful eye of the FCA include Land and Forestry.

However, the picture isn’t quite as black and white as it might appear.

Some crypto providers, such as PayPal, provide other banking or transaction services, and therefore their wider footprint results in their business being subject to the usual high standards of the FCA. That being said, this does not provide crypto clients of PayPal with additional protection if something were to go wrong with their cryptocurrency holdings.

Also, some established crypto players have been steadily obtaining various FCA permissions to operate financial services in the UK. For example, in 2018  Coinbase proudly announced that it was the first crypto exchange to open a UK bank account and obtain licenses connected to money transfers.

Offshore cryptocurrency blurs the lines

Things get very complicated when the crypto exchange is based off-shore and doesn’t have a physical or legal footing in the UK.

With regulated investments, such as shares and bonds, an offshore broker offering services to UK clients would still fall within the regulatory net of the FCA. However, this is not the case with an unregulated asset such as a crypto coin.

An exchange such as Binance, which is not operated by a UK company, is effectively outside of the UK’s jurisdiction. It may serve UK clients from its offshore base without being accountable to UK rules.

Binance did have a holding company based in the UK, which was issued with an order from the FCA to cease all activity connected to regulated activities. This was a noisy but ineffectual action because the Binance exchange itself was not operated from this legal vehicle.

The legal environment for Bitcoin and other cryptocurrencies is likely to evolve on a monthly basis as regulators continue to balance the need to protect UK investors from unscrupulous actors with the desire to avoid heavy sanctions that may ban UK citizens from transacting with the majority of crypto operators.