The ownership of cryptocurrencies has been growing over the past few years and, as of 2024, 6.8% of the global population own crypto. That’s an impressive 560 million global crypto owners. And as more investors adopt the currency, the need for investor protection rises too. 

Globally, cryptocurrencies are becoming regulated either to protect investors from scams and market manipulation, prevent illicit activities (such as terrorism and money laundering), and to provide tax clarity. However, each country is regulating the industry in a different way, making the regulation complex to navigate. And leaving investors and companies unsure about their next steps.

This series will provide an explanation of each country’s crypto regulation system in an aim increase investor and business confidence in navigating the regulation space. 

Our first series will begin in United Kingdom, where crypto regulation was introduced in 2020. The UK has an advanced comprehensive regulatory framework for cryptoassets, aiming to balance innovation with investor protection and market integrity. The regulation also aims to align global standards while addressing domestic concerns. 

Here’s further details on regulation in the UK:

The Regulators in the UK:

1. The Financial Conduct Authority (FCA): Regulates cryptoasset provides and ensure they implement Anti-Money Laundering and Countering Terrorism Financing (AML/CFT) policies and procedures. 
2. The HM Treasury: Overseas the work of the FCA.
3. The Bank of England: Ensures financial stability and facilitate the safe innovation of the digital payments landscape.

Legislative and Regulatory Developments:

The UK’s regulation of the crypto industry is comprehensive:

1. Cryptoasset Regulation: The UK government is implementing a full suite of regulations covering cryptoasset issuance, trading, custody, and intermediation. This unified approach replaces the previously proposed phased implementation, ensuring that stablecoins and other cryptoassets are regulated concurrently. ​ 
2. Stablecoin Regulation: Stablecoins will be subject to specific regulations addressing backing assets, redemption rights, custody, and record-keeping. These measures aim to ensure financial stability and consumer protection within the stablecoin market. ​ 
3. Staking Services Clarification: The government has clarified that staking services do not constitute a Collective Investment Scheme (CIS), reducing regulatory uncertainty and facilitating the growth of staking activities within the UK. ​ 

Implemented Crypto Regulation:

1. Money Laundering Regulations (MLRs): Cryptoasset businesses are required to register and comply with anti-money laundering and counter-terrorist financing (AML/CTF) requirements. 
2. Travel Rule: Cryptoasset businesses must collect, verify, and share information about cryptoasset transfers. The aim is to illicit activities. 
3. Financial Promotions Regime: Regulation on how cryptoassets can be promoted to UK consumers. The aim is to ensure promotions are fair, clear and not misleading. 
4. Financial Services and Markets Act (FSMA) 2003, introduced under the FSMA 2000: This Act provides a framework on regulating financial services and was expanded to add cryptoassets, in which cryptoassets are defined. 
5. Regulated Activities Order (RAO): This order defines the cryptoasset activities that must be regulated, subject to FCA supervision. 

Upcoming Crypto Regulation:

From 2026, the FCA is planning on implementing a new authorisation regime for crypto companies. Currently, crypto companies (who perform exchange activities or are custodian wallet providers) need to meet AML/CFT requirements. But the new legislation will further clarify activities that need to be regulated. This will create a lengthier registration process but will allow crypto companies further permissions. 

New legislation for stablecoins will also be forthcoming and the new draft rules could be ready later this year. 

Taxation and Reporting:

The above set of regulation and legislation affect crypto companies, with the aim to protect investors. However, investors are also subject to regulation through taxation and in the following ways:

1. Capital Gains Tax: Crypto holders will be subject to Capital Gains Tax of between 18%-24% when making a profit from selling or disposing of their crypto.
   1. There is a tax-free allowance of £3,000
   2. The following transactions fall under CGT:
      1. Selling crypto for fiat currency
      2. Swapping crypto
      3. Spending crypto
      4. Gifting crypto (unless it’s gifted to a spouse)
      5. Selling NFTs
2. Income Tax: Income made from crypto, be it for services rendered, mining or staking will be subject to an income of tax.
   1. The personal income tax allowance is £12,570
   2. The following transactions fall under income tax:
      1. Employee remuneration
      2. Mining rewards
      3. Bounties
      4. Staking rewards
      5. Lending rewards
      6. Liquidity Mining Rewards

Since 2020, the UK has made significant progress on taxing and regulating the crypto industry, impacting both investors and businesses. As the industry grows and matures, it’s expected that more regulation will arise. Galahad Research will continue to review the changes and provide easy to understand guides on how the industry is evolving and what that means for the investor.