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Understanding UK and EU cryptocurrency regulations

Crypto regulations in EU-UK

The UK and EU are often leaders when it comes to regulatory oversight. For example, the EU’s 6AMLD and GDPR are global leading initiatives, and the UK’s Financial Conduct Authority (FCA) coined the term RegTech. With significant cryptocurrency European regulations in development, the world will be closely watching to see what crypto requirements will be in the UK and the EU.

Interestingly, there seems to be the start of divergence between regulatory approaches. While the EU is in final discussions on final crypto legislation and the UK is starting new initiatives, the UK appears to be taking a more crypto-friendly approach. This new post-Brexit approach contrasts with most other regulations where there has been a drive for equivalency.

Let’s examine the regulatory approaches of the EU and the UK for crypto.

EU cryptocurrency regulations

Europeans have similar attitudes toward cryptocurrencies as other developed countries; according to the Global State of Crypto report, 17% of Europeans have bought crypto. They generally view it as a long-term investment rather than a payment medium. While there is curiosity around the topic — 53% of Germans are interested in learning more about the topic — only 7% of Europeans are considering adopting crypto.

Currently, there are different crypto rules on a country-by-country basis. Under 5AMLD, crypto exchanges and crypto wallet providers are considered “obliged entities” and face similar requirements as financial institutions. These requirements include Anti-Money Laundering (AML), Customer Due Diligence, transaction monitoring and suspicious activity reports.

While 5AMLD brought crypto exchanges under the scope of AML regulations, it did not specify a single set of Know Your Customer (KYC) rules across the EU. Under 6ALMD, there will be a single rulebook for KYC across the entire EU. That Directive is making its way through the different member states’ legislative processes, and it’s just a matter of time until full implementation. To create more cohesive, harmonious and powerful AML regulations, the European Commission has also adopted an action plan for a single, comprehensive Union policy on preventing money laundering and terrorism financing.

Regulation on Markets in Crypto Assets (MiCA)

On September 24, 2020, the European Commission proposed the Regulation on Markets in Crypto Assets (MiCA) to provide legal certainty around the regulatory treatment of crypto-assets. The goal is to help promote innovation, provide consumers and investors with appropriate protection levels and ensure financial stability and market integrity. The EU Parliament voted on this regulation on March 14, 2022, and approved it, making it one step closer to becoming law. The proposed effective date is 2024.

MiCa states,

Crypto-asset issuers and service providers cannot fully reap the benefits of the internal market, due to a lack of both legal certainty about the regulatory treatment of crypto-assets as well as the absence of a dedicated and coherent regulatory and supervisory regime at EU level.

The Commission believes that enabling full access to the internal market and providing legal certainty will promote innovation, provide consumers and investors with appropriate protection levels, and ensure financial stability and market integrity.

MiCa creates a new industry category, crypto-asset service providers (CASPs), defined as “any person whose occupation or business is the provision of one or more crypto-asset services to third parties on a professional basis.” The definition covers trading, exchanges, custody and even providing advice.

In regards to money laundering, the goals of MiCa include ensuring that:

  • Managers and principal shareholders are fit for purpose and have sufficient expertise in dealing with AML and Combating the Financing of Terrorism regulations
  • Solid and effective internal control and risk assessment mechanisms, systems and procedures are in place to ensure the integrity and confidentiality of information
  • Crypto-asset service providers keep records of all transactions, orders and services related to crypto-assets that they provide
  • Systems are in place to detect potential market abuse committed by clients

MiCA has already gone through the proposal, feedback, and debate stages, but the text is not final. There are also considerations, such as proposed AML regulations that require “all transfers of crypto-assets will have to include information on the source of the asset and its beneficiary, information that is to be made available to the competent authorities.” As financial regulatory lawyer Pien Kerckhaert states,

You can read the MiCA regulation and interpret it, but to be able to really grasp it, you would also need knowledge of other regimes.

A holistic understanding of EU and country-specific regulations for investments, banking, payments and due diligence are required to understand the full scope of MiCA.


Consider Germany, where 40 banks are interested in providing crypto custody services after new AML laws. With EU-wide rules and an open market, there are significant expansion opportunities; as Michael Offermann of Solarisbank states,

Digital assets will fundamentally change the financial market. As soon as it becomes easier to buy and store Bitcoin, we expect strong growth.

Under the German Banking Act (KWG), licenses are required for crypto exchange platforms. BaFin, the German Federal Financial Supervisory Authority, has issued guidance for managing cryptocurrency securities registers, focusing on the integrity and authenticity of the data kept in the register.

In Germany, the identity requirements are:

  • First name and surname
  • Place of birth
  • Date of birth
  • Nationality
  • Residential address


Comparatively, across the border, KYC rules in France have been hardened to include all crypto transactions, including crypto to crypto transfers. According to Simon Polrot, president of French crypto association ADAN, these rules are “harsher than other jurisdictions” and “political positioning.” There are prohibitions of holding anonymous accounts and strict KYC obligations for every account. All crypto exchanges require registration from the financial market’s authority.

In France, the identity requirements are:

  • Full name
  • Residential address
  • Government-issued document with a photograph

The crypto environment in Europe will change dramatically over the next few years as MiCA and other new regulations come into effect.

UK crypto regulation

The UK currently has crypto regulations requirements that match the EU’s 5AMLD and 6AMLD. In the UK, the identity requirements are:

  • Full name
  • Residential address
  • Date of birth

The FCA is the AML/KYC regulator of UK crypto businesses, including firms involved with exchange tokens (such as Bitcoin). These businesses must comply with the same AML regulations as banks and financial services. As the FCA states, “Our supervisory approach to crypto asset businesses will be in line with our approach to other businesses under the MLRs (money laundering rules).”

Many operators have been on a temporary register, awaiting approval, but that register is closing. Operators facing outright rejection are closing UK business arms, and others might have to cease operations until approval temporarily. The March 31, 2022 deadline to win FCA approval was extended.

But the government has a goal to make the UK a global crypto hub. Chancellor of the Exchequer, Rishi Sunak states

It’s my ambition to make the UK a global hub for cryptoasset technology, and the measures we’ve outlined today will help to ensure firms can invest, innovate and scale up in this country.

Two UK crypto bills have the intention of cutting red tape, maintaining financial standards and creating ways to recover illicit crypto assets:

  • The Financial Services and Markets Bill
  • The Economic Crime and Corporate Transparency Bill

Benjamin Whitby, head of regulatory affairs at Qredo, when discussing the developments posits:

Crypto assets unlock faster settlement, remove credit risk and drop settlement times to near zero, it’s a huge win for commerce and the UK has set the intent it will take the front foot. The UK has a long history of exploring boundaries, crossing oceans in tiny ships, insuring risk and forming new ventures — crypto is no different.

Over time, the different regulatory approaches by the EU and the UK will help determine which markets thrive and attract the most capital and innovation. Additionally, the risks and issues with each approach will become more apparent as the crypto industry matures. For CASPs that want to operate in numerous global markets, understanding the rules and nuances, and being adaptable to both approaches, will maximize the opportunity while ensuring compliance.

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