Funny Money

Funny Money

Cryptocurrency Regulations

Favourite money laundering targets were once confined to safe, dull assets such as real estate, offshore accounts, and unregulated financial services.  But from the moment Satoshi Nakamoto released his, her, or their (the author/s remain anonymous to this day) white paper entitled Bitcoin: A Peer-to-Peer Electronic Cash System, money-launderers were presented with a new method of hiding dirty money.

Dark market lords are now able to clean money through a system that has no centralised network for governments to control.  Furthermore, by using crypto-currency, money launderers have no need to rely on a middle-man such as a bank to facilitate transactions and confidentiality is a key part of its appeal.

The world of cryptocurrencies

Regulators have defined cryptocurrency as:

"… a digital representation of value that (i) is intended to constitute a peer-to-peer (P2P) alternative to government-issued legal tender, (ii) is used as a general-purpose medium of exchange independent of any central bank, (iii) is secured by a mechanism known as cryptography and (iv) can be converted into legal tender and vice-versa".

Units of cryptocurrency are created through a process of ‘mining’.  This involves computers solving complex maths problems to create digital ‘coins’.   Rather than being controlled by a central bank, cryptocurrencies have a ledger (often referred to as a blockchain), which is visible to the public (although the traders real identities are kept private).

The ledger is a list of entries in a database that nobody can change without fulfilling specific conditions.  Ledgers or blockchains are decentralised meaning they are self-run and self-governed without the interference of outside parties.

Cryptocurrencies can be used to purchase goods and services.  However, they are also becoming an asset class in their own right, albeit a speculative, volatile one.

Regulating cryptocurrencies

Given that governments worldwide are at a loss to regulate the big five tech companies (Amazon, Google, Facebook, Microsoft, and Apple), it is difficult to imagine them getting a swift grip on a de-centralised, cross-border financial system.

In fairness, the task is not easy, for the following reasons identified by Peter Yeo in Crypto-assets: regulator’s dilemma:

  • crypto-currencies are hard to monitor because their opaque nature makes gathering information challenging
  • the cross-border reach of the technology makes regulatory enforcement near-impossible
  • each jurisdiction has evolved to develop different regulatory responses to the risks posed by crypto-currencies

China and India have both banned trading in Cryptocurrencies (although the latter’s ban was overturned in early 2020 by the country’s Supreme Court).

The US position

In America, there is no authority to supervise and regulate Bitcoin, the most popular form of crypto-currency.  This is because the currency does not operate through banks and, hence, the Federal Reserve Bank had no jurisdiction.

US Securities Exchange Commission (SEC) could play a regulatory role, but as Peter Yeo points out:

“that would depend on bitcoin and other Cas [crypto-assets] being deemed as securities. CAs, in general, have their values determined by parties in the contract, while a security is an ownership right representing a financial value that fluctuates based on corporate performance. Bitcoin and other CAs hold no assurances of value, as no bank or governments fund them.”

Progress has been made, however.  In May 2020, a Congressman from Arizona introduced the Cryptocurrency Act 2020.  The aim of the bill, according to its text, is to “clarify which federal agencies regulate digital assets, to require those agencies to notify the public of any federal licenses, certifications, or registrations required to create or trade in such assets, and for other purposes.”

The Bill proposes that the Commodity Futures Trading Commission (CFTC) be the primary regulator of crypto-commodities, the Financial Crimes Enforcement Network (FinCEN) and the Comptroller of the Currency be the regulators of cryptocurrencies, and the Securities and Exchange Commission (SEC) be the regulator of crypto-securities and “synthetic stablecoins.”

The UK position

There is currently no regulatory body in the UK responsible for crypto-currency.  Gains and losses involving crypto-currency are subject to Capital Gains Tax.

Any British-based crypto-currency exchanges must register with the Financial Conduct Authority, although some may obtain an e-licence as an alternative.  Should the activities involving crypto-currency fall under the existing financial regulations for derivatives, they must gain authorisation.

Until recently, the Bank of England seemed happy with this patchwork system of regulation; however, in January 2020, it was announced that the Bank would examine how Britain could adopt a bitcoin-style digital currency.    On 20 July 2020, HM Treasury released a public consultation for crypto-asset promotions, seeking industry views on the government’s proposal to bring the promotion of certain types of crypto-assets within the scope of the UK’s existing financial promotions regulation.

The FCA has suggested expanding annual financial crime reporting requirements to include all crypto asset exchange and custodian wallet providers.  This would allow it to collect more information so it can assess the risk and extent of crypto-currency money laundering.  Furthermore, the EU 5th Anti-Money Laundering Directive (5AMLD), which came into effect on 10 January 2020 includes crypto service providers like virtual-fiat exchanges or custodian wallet providers within its scope.  The aim is to make those participating in crypto transactions more transparent.

Concluding comments

Both the US, EU, and the UK are moving, albeit tentatively, to regulate the crypto-currency market, by first trying to make it less opaque.  Over the next few years, there is little doubt that governments will push harder on crypto-currency players to control the risk of financial crime and terrorism funding.

The wild west of the financial markets looks set for taming.

Latest News Posts

Most, if not all, businesses will at some point find themselves presented with a grievance by an employee. It is […]

Sometimes businesses face an unexpected disruption or temporary downturn in work.  Whilst no-one wants this to happen it is often […]

It is inevitable that every business from time-to-time will be required to undertake a disciplinary procedure.  Whilst most staff are […]

Sign up for our monthly newsletters for the latest news & articles
At Wilford Smith we are invested in your success. Our team will get to know you, your family, your business, and your market sector. To us, you and needs are unique. You can be confident that by instructing us, we will take care of all your legal matters throughout your lifetime, providing creative solutions and protecting your best interests.



  • Meadowhall Business Park
  • S9 2EQ
  • Tel: 0808 164 4106
  • Fax: 0844 225 0572


  • Smithy House 22 Westgate,
  • Rotherham S60 1AP
  • Tel: 0808 164 4106
  • Fax: 0844 225 0572


  • 20 Old Bailey
  • LondonEC4M 7AN
  • By appointment only
Copyright ©2024 Wilford Smith, All rights reserved.
2024 Wilford Smith is the trading name of WS Strategic Ltd. a limited company registered in England and Wales, registration number 07777022. Registered office – Meadowhall Business Park, Sheffield S9 2EQ. We are authorised and regulated by the Solicitors Regulation Authority. SRA Registration Number 640898.