Legal regulation of cryptocurrency in the UK is a standard process for the country. To date, the state has developed the most favorable legislative framework for doing business with cryptocurrency operations. The state supports international projects related to digital currency, sponsors start-ups.
Despite the positive trend, the UK government has not yet settled a final point regarding the legal regulation of this type of activity.
Specialists note that the cryptocurrency remains in a so-called legal vacuum. With this provision it is necessary to fight, as the economies of states can suffer significantly because of the legalization of proceeds from crime.
The digital currency is often used to finance terrorism. Innovations can bring the business associated with the cryptocurrency to a new level.
In 2014, the State Bank of England for the first time made a public statement about Bitcoin. Representatives of the bank in the quarterly report published a scientific article “Economics of digital currencies.”
It says that in the case of bitcoinization (equating the cryptocurrency to the main payment unit), the monetary and credit system will suffer significantly. This process deprives the state of the opportunity to impact the formation of prices and regulation of economic processes.
The British economy will not allow complete bitcoinization, but the equivalence of Bitcoin to the British pound sterling is allowed.
After the release of this article, the UK Treasury sent an official request with a request to clarify the existing barriers to the incorporation of the cryptocurrency into the activities of economic entities.
In 2015, a document with answers to more than 120 questions regarding electronic money appeared “Digital Currencies: An Answer and an Information Request”. Dialogue of specialists and representatives of the banking sector convinced the government of Great Britain of the minimal risks of digital currencies for the economy of the state.
In 2016, a report on virtual money funds, prepared by the working group of the Commonwealth of Nations, was published. At the London School of Economics, leading banking officer Ben Broadbent delivered a lecture on the importance of innovative processes in the development of modern Britain.
In the same period, specialists from the University College of London, together with the state bank, started creating a new digital currency, RSCoin.
Soon, the Office of Financial Regulation and Control on the official site posted information on the state program Project Innovate (Innovation Hub). The participants of the initiative were cryptocurrency companies and other subjects of the electronic commerce sector.
For financial companies that develop and test new products, a separate part of the program called the “regulatory sandbox” is assigned. According to this part, subjects can actively work with potential consumers without violating financial legislation. At the same time, companies do not need to register in state institutions and carry out a licensing procedure.
As a result, the participants of the initiative were 22 start-ups, among them 9 companies working with digital money.
In 2014, the Office officially confirmed the lack of financial regulation of operations with the cryptocurrency, because Bitcoin is not money. Specialists call Bitcoin a combination of numbers gained because of mathematical actions. Under such conditions, digital money is not subject to the Law on the Legalization of Proceeds from Crime.
Circle is the first company in the UK, which in 2016 was officially registered with the Office. State registration allowed the company to work with banking institutions, which was a breakthrough in the relationship between the bank and the cryptocurrency company.
The Treasury Secretary for Economic Affairs said that by such actions the state demonstrates its intention to work with progressive companies and develop a new legislative base.
In the same year, the Treasury plan was published to combat the legalization of illicit proceeds. The document proposed changes to the current legislation, taking into account the activities of stock exchanges and crypto-exchange companies.
The income received from e-money exchange transactions is not subject to value added tax from 2014, however VAT is levied on suppliers that sell goods for digital money. Each transaction needs additional analysis, because in the UK there is a capital gains tax, corporate and income tax.
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