Since the mining of the bitcoin Genesis Block on 3 January 2009, cryptocurrencies have provided a wealth of innovative fiscal opportunities for tech savvy consumers across the globe. However, as with most shiny new things, bad actors have simultaneously worked to exploit these products for illicit purposes.
In the early days of the digital assets’ movement, crypto-criminals appeared to be rampant in their abuses. Regulation and legislation in the crypto-arena was markedly on the back-foot. 15 years later and cryptocurrencies are no longer a niche tool of the cypherpunk community. Instead, bitcoin and a large cohort of her sister currencies have essentially gone ‘mainstream’, in part thanks to the concerted efforts made in crypto-regulation.
In the UK, one key regulatory move was made on 10 January 2020, with the appointment of the Financial Conduct Authority (FCA) as the anti-money laundering and counter-terrorist financing supervisor for UK cryptoasset businesses, further to the actions as set out in the Economic Crime Plan, 2019 to 2022.
Resultingly, if cryptoasset services are to be provided by way of business in the UK, then these cryptoasset businesses must be registered with the FCA in accordance with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). Since ascending to the role, the FCA hasn’t been playing around. Its Annual Report and Accounts 2023-24 states that in the period up to 31 March 2024, ‘over 87% of crypto registrations were rejected, withdrawn or refused.’
A further indictor of the FCA’s determination to crackdown on crypto-malpractice can be seen through the instigation of its first criminal prosecution concerning unregistered cryptoasset activity under the MLRs, in a case that recently played out in Westminster Magistrates’ Court on 30 September 2024.
First of its kind?
Olumide Osunkoya was accused of illegally running a network comprised of at least 11 crypto ATMs, which processed over £2.6 million in transactions between 29 December 2021 and 8 September 2023 without the required FCA registration. Osunkoya applied for registration under the MLRs in 2020, but was refused in 2021, continuing to operate the scheme regardless.
The Court was presented with evidence that the ATMs were likely used by those engaged in money laundering or tax evasion, and that Osunkoya had not carried out source of funds or customer due diligence verification procedures. Consequently, Osunkoya pleaded guilty to 5 offences on 30 September, resulting in the UK’s first conviction relating to offences concerning the operation of crypto ATMs.
But this case should not be viewed in isolation. Rather, it speaks to the broader efforts of the UK regulatory scene, which has seen a steady increase in new regulatory developments over the past 18 months or so.
On 11 September, the Property (Digital Assets etc) Bill was introduced into Parliament with its 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 a thing is not prevented from being the object of personal property rights merely because it is neither a thing in action nor a thing in possession.
In a press release announcing the Bill, the Ministry of Justice stated that the Bill ‘will mean that for the first time in British history, digital holdings including cryptocurrency, non-fungible tokens such as digital art, and carbon credits can be considered as personal property under the law […] The Bill will also ensure Britain maintains its pole position in the emerging global crypto race by being one of the first countries to recognise these assets in law.’
Prior to this, the enactment of the Financial Services and Markets Act 2023 has, amongst other things, brought cryptoassets under the purview of the definition of ‘investment’ for UK regulated activities. Further still, the Economic Crime and Corporate Transparency Act 2023, has augmented the powers available to law enforcement in the search and seizure of cryptoassets, specifically through the amendment of criminal confiscation powers under Parts 2 to 4 of the Proceeds of Crime Act 2002, and civil recovery powers in Part 5.
Up Next…
Looking forward, it will be interesting to see whether the UK’s regulatory momentum keeps gaining speed. Crypto consumers and practitioners alike would be wise to keep an eye on significant developments. Whether the Property (Digital Assets etc) Bill comes into law, for instance, will be a key milestone for the crypto-sphere.
Although 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 crystalised their position on digital assets under English law adding greater clarity (and hopefully stability) to the sector. Moreover, the FCA has signposted that it is flexing its regulatory muscles through proactive enforcement, if the Osunkoya case is anything to go by.
And while it has traditionally been the US Securities and Exchange Commission that has garnered a rep from crypto-execs as operating under a ‘regulation by enforcement’ model, the FCA is at the very least showing that it will not shy away from enforcing its own regulatory powers in a swift and realisable way.
Nevertheless, the regulatory road ahead remains somewhat unclear. The political shift in the UK highlights the absence of a roadmap for the next phases of regulation as a result of the change in government, which was conspicuously silent in its manifesto (and in its first 100 days in office) on crypto-regulation – perhaps not wishing to pick up where the last government left off. Whether this is a lack of enthusiasm or deliberate is anyone’s guess, only time will tell.
By Keith Oliver, head of international, Charlotte Tregunna, partner and Amalia Neenan FitzGerald, associate, at law firm Peters & Peters
