Crypto Licensing in UK

The United Kingdom (UK) stands out as a top choice for cryptocurrency companies, offering an appealing environment, despite the absence of a comprehensive state licensing framework for cryptocurrency businesses.

Formal government licensing for cryptocurrency exchanges is not currently mandatory in the UK. However, the Financial Conduct Authority (FCA) took a proactive step a few years back by establishing the Innovation Hub. This platform extends advisory legal support to participants and stakeholders in the crypto market. Although registration on this platform is not obligatory, it has introduced a degree of uncertainty in understanding cryptocurrency licensing in the UK.

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    Adding to the complexity, there is no universally agreed-upon definition of a crypto asset in the UK. The UK Cryptoasset Taskforce, comprising the FCA, Her Majesty’s Treasury (HMT), and the Bank of England (BoE), defines crypto assets as digital representations of value or contractual rights that are cryptographically protected, use distributed ledger technology and are capable of being transferred, stored or traded electronically. They can be categorized into three main types:

    1. Exchange-traded tokens (“cryptocurrencies”):
      • Examples include Bitcoin and Ether.
      • Utilizes distributed ledger technology (DLT).
      • Used as a medium of exchange or for investment, distinct from securities or service tokens.
    1. Security tokens:
    • Designated as “specified investments” under the Financial Services and Markets Act (2000).
    • Can offer ownership rights, a predetermined return, or a share in future profits.
    • Can be treated as securities under the EU’s Markets in Financial Instruments Directive II (MiFID II).
    1. Utility tokens:
    • Exchangeable for access to a specific product or service.

    In April 2022, the Government committed to a new regulatory framework for crypto assets. A consultation paper, published on February 1, 2023, details proposals for the upcoming regime, advancing the Government’s approach. Building on Her Majesty’s Treasury initiatives, especially regarding stablecoins and cryptoasset financial development, these proposals aim to position the UK as a leader in cryptoasset technology and innovation, fostering a growth-friendly environment while ensuring prudent risk management for consumers and financial stability.

    Benefits of Obtaining a Crypto License in the United Kingdom

    • Tax Advantages:
      • Enjoy a competitive 19% corporate tax rate.
      • Cryptocurrencies are treated as property, subject to capital gains tax, exempt from VAT.
    • Effortless Registration:
      • Streamlined process for registering a cryptocurrency company.
      • Flexible organizational forms to suit your business needs.
    • European Market Access:
      • Access the European Economic Area with a UK crypto license, leveraging passporting treatment.
    • Vibrant Ecosystem:
      • Thriving fintech and blockchain ecosystem with ample support for startups.
      • Opportunities for networking, mentorship, and collaborations.
    • Language and Legal Stability:
      • Conduct business in English for seamless international interactions.
      • Operate within a stable and predictable common law system.

    Main Requirements for Obtaining a Crypto License in the United Kingdom

    To secure a cryptocurrency license in the UK, companies need to fulfill specific criteria:

    • Organizational Registration:
      • Mandatory registration of the company within the UK.
    • Office Presence:
      • Requirement for the company to maintain a physical office in the UK.
    • Record Maintenance:
      • Obligation for the licensee to meticulously document all company transactions at the designated place of business.
    • Resident Director Appointment:
      • Mandatory employment of a resident director, possessing requisite business management experience and meeting specified educational and professional standards.
    • Share Capital Flexibility:
      • Currently, no minimum share capital prerequisites for acquiring a cryptocurrency license.

    Embarking on a crypto business requires not only compliance with AML/CFT regulations but also the internal development and implementation of mechanisms to adhere to AML/CFT policies. This involves the following steps:

    • Policy Development:
      • Create a comprehensive policy defining the approach to AML/CFT compliance.
      • Establish procedures and controls to deter and detect money laundering and terrorist financing activities.
    • KYC Procedure Implementation:
      • Develop and enact a thorough Know Your Customer (KYC) procedure.
      • Verify the identity and identification of customers as part of the due diligence process.
    • Designate a Responsible Person:
      • Appoint a dedicated individual responsible for AML/CFT compliance.
      • This person will oversee policy implementation, conduct employee training, and coordinate all AML/CFT compliance activities.
    • Internal Audit Oversight:
      • Establish an internal audit department tasked with reviewing and monitoring the company’s adherence to AML/CFT requirements.

    Process of Registration (Licensing) of a cryptocurrency company in the UK

    Upon initiating the process, the registration (licensing) process for a cryptocurrency company in the UK involves the following steps:

    1. Application Submission:
      • 1. Complete and submit the application form to the Financial Conduct Authority (FCA).
    2. Registration Fee Payment:
      • 1. Fulfill the registration fee payment based on the company’s revenue:
        • 1.1. £2,000 (approximately US$2,599) for companies with revenue below £250,000 (about US$324,770).
        • 1.2. £10,000 (approximately US$12,990) for companies with revenue surpassing £250,000.
    1. Supervisor Assignment:
      • 1. The FCA appoints a dedicated supervisor to assess the applicant’s request.
    2. Information Request:
      • 1. Upon the supervisor’s request, provide additional necessary information or evidence for application consideration.
    3. Application Review:
      • 1. The FCA thoroughly reviews the application using databases and information from regulators in the UK and overseas.
    4. Threshold Conditions Assessment:
      • 1. Evaluate compliance with minimum threshold conditions, tailored to the complexity of the business.
    5. Authorization Grant:
      • 1. If successful, the FCA issues authorization for the regulated activity.
    6. Written Confirmation:
      • 1. The FCA provides written confirmation, indicating the authorized regulated activity, start date, and any associated restrictions.

    After successfully navigating the registration process, the Financial Services Register promptly and automatically reflects your crypto registration (license) status.

    Should you opt to withdraw your application during the authorization phase, it’s crucial to note that the application fee is non-refundable. This typically occurs when applicants encounter challenges in providing requisite information or fail to meet deadlines.

    In the unfortunate event of an application rejection, the FCA provides a comprehensive explanation for their decision and initiates a refund of the application fee. Following this, a resubmission of the application is permissible.

    Post-registration, the FCA holds the authority to suspend or cancel the registration of a cryptocurrency company if it fails to meet the specified requirements.

    Additionally, authorized companies are obligated to pay a periodic fee. This fee is determined through a specific formula, considering factors such as the application fee, company valuation, and the number of calendar months. The FCA calculates the fee on a case-by-case basis. In the initial year, authorized companies only pay a proportionate fee based on the remaining months in the payment year.

    Post registration support (Optional)

    This optional stage completes all necessary arrangements, ensuring the authorized company is fully operational. It includes:

    • Internal control services.
    • Assistance with customer complaints.
    • Audit of AML/KYC procedures.
    • Periodic employee training.
    • Representation during regulator supervision.
    • Preparation of legal opinions.

    Additional Services Related to Obtaining Crypto License in the United Kingdom

    1. Establishment of organizational structure – assistance identifying the appropriate legal structure, incorporation of holding companies in tax efficient jurisdictions, transferring companies shares, designing ownership structure, etc.;
    2. Tax advisory – guidance and advice regarding tax obligations and liabilities, minimizing tax liabilities from cross-border activities, creating a tax planning strategy, etc.;
    3. Preparation of internal documentation – preparation of tailor made AML / CTF Policy with Annexes, Terms & Conditions, Privacy Policy, Cyber Security Policy, etc.;
    4. Assistance in hiring employees – guidance and support to employers who are looking to hire new staff. Such service includes potential employees background / knowledge check, interviewing, establishment of employment policies and procedures, etc.;
    5. Assistance in creating partnerships – support and advisory in various potential partnerships and collaborations with other entities in terms of additional services (e. g., IT, KYC, banking service providers) or additional financing (e. g., organizing meetings with VC, agnel investors, preparation of pitch deck, etc.);
    6. Legal support in other crypto related projects – assistance in token offering legal support (ICO/STO/IEO), private placement rounds, preparation of legal opinions, analysis of business models, etc.

    For more please see our Services page.

    Summary of Crypto license in the United Kingdom

    Project time frames Up to 9 to 12 months
    State fee for application From 2350 GBP
    Required share capital 0 GBP
    Corporate income tax 19% for companies with profits below 50 000 GBP and 25% for companies with profits above 250 000 GBP. For profits in between those profit amounts tax rate can gradually rise from 19% to 25% in proportion with the profits
    Annual supervision fee 0 GBP
    Local staff member Not required, recommended
    Physical office Required
    Accounting audit Required
    Bank account options European EMIs, specialized credit institutions