Since the mining of the Bitcoin Genesis Block on January 3, 2009, cryptocurrencies have offered a host of innovative tax opportunities to tech-savvy consumers around the world. However, as with most shiny new things, malicious actors have simultaneously worked to exploit these products for illicit purposes.
At the start of the digital asset movement, crypto-criminals seemed to increase their abuses. Regulation and legislation in the crypto space was significantly behind. 15 years later, cryptocurrencies are no longer a niche tool of the cypherpunk community. Instead, bitcoin and a large cohort of its sister currencies have become essentially “mainstream,” thanks in part to concerted crypto-regulatory efforts.
In the United Kingdom, a key regulatory action was taken on January 10, 2020, with the appointment of the Financial Conduct Authority (FCA) as the anti-money laundering and anti-terrorism financing supervisor for UK businesses. of crypto-assets, following the actions described. in the Plan to Combat Economic Crime, 2019 to 2022.
Therefore, if crypto-asset services are to be provided commercially in the UK, then such crypto-asset businesses must be registered with the FCA in accordance with the Anti-Money Laundering, Securities Financing Regulations 2017. terrorism and transfer of funds (payer information) (MLR). ). Since assuming this position, the FCA has not performed. Its 2023-24 annual report and accounts state that in the period up to March 31, 2024, “more than 87% of cryptographic registrations were rejected, withdrawn or refused.”
Another indicator of the FCA’s determination to crack down on crypto malpractice can be seen through the instigation of its first criminal prosecution relating to unregistered crypto-asset activity under the MLRs, in a case which s ‘was recently held at Westminster Magistrates’ Court on September 30, 2024.
First of its kind?
Olumide Osunkoya was charged with illegally operating a network consisting of at least 11 crypto ATMs, which processed over £2.6 million in transactions between December 29, 2021 and September 8, 2023 without registration required by the FCA. Osunkoya applied for MLR registration in 2020, but was denied in 2021, continuing to operate the program nonetheless.
The Court received evidence that the ATMs were likely used by people involved in money laundering or tax evasion, and that Osunkoya had failed to verify the origin of the funds nor due to customer due diligence. Consequently, Osunkoya pleaded guilty to 5 offenses on September 30, resulting in the UK’s first conviction for offenses relating to the operation of crypto ATMs.
But this matter should not be considered in isolation. Rather, it speaks to the wider efforts of the UK regulatory sector, which has seen a steady increase in new regulatory developments over the past 18 months or so.
On September 11, the Property (Digital Assets etc.) Bill was presented to Parliament for first reading in the House of Lords. The Bill aims to provide an important explanation on the legal treatment of digital assets in the UK, by confirming the existence of a third category of personal property, clarifying that something is not prohibited from be the subject of personal property rights simply because it is neither a thing in action nor a thing in possession.
In a press release announcing the bill, the Ministry of Justice said the bill “will mean that for the first time in British history, digital assets, including cryptocurrencies, non-fungible tokens such as digital art and carbon credits could be considered personal assets. » ownership under law (…) The bill will also ensure that Britain retains its leading position in the emerging global crypto race by being one of the first countries to recognize these assets in law.
Prior to this, the enactment of the Financial Services and Markets Act 2023, among other things, brought cryptoassets under the definition of “investment” for regulated activities in the UK. Additionally, the Economic Crime and Corporate Transparency Act of 2023 increased law enforcement powers to search and seize cryptoassets, including through changes to criminal forfeiture powers under Parts 2 to 4 of the Proceeds of Crime Act 2002, and civil recovery powers in Part 5.
Following…
Going forward, it will be interesting to see whether the UK’s regulatory dynamics continue to accelerate. Consumers and crypto practitioners would do well to keep an eye out for important developments. For example, the entry into force of the Property (Digital Assets, etc.) Bill will be a key milestone for the crypto-sphere.
While this Bill will not necessarily change the legal treatment of cryptoassets to date, it will instead send a clear signal that the UK courts have crystallized their position on digital assets within the framework of English law, thereby adding more clarity (and hopefully stability) to the sector. Additionally, the FCA has indicated that it demonstrates regulatory flexibility through proactive enforcement, based on the Osunkoya case.
And while it’s traditionally been the U.S. Securities and Exchange Commission that has earned cryptocurrency executives’ reputation for operating under a “regulation by enforcement” model, the FCA is at the very least showing that it doesn’t. will not hesitate to enforce its own rules. regulatory powers in a timely and feasible manner.
However, the regulatory path forward remains somewhat unclear. The political shift in the UK highlights the lack of a roadmap for the next phases of regulation due to the change in government, which was conspicuously silent in its manifesto (and in its first 100 days in office) on crypto-regulation – perhaps I don’t want to pick up where the last government left off. Whether this was a lack of enthusiasm or a deliberate act, only time will tell.
By Keith Oliver, International Head, Charlotte Tregunna, Partner and Amalia Neenan FitzGerald, Associate
