The UK has been well established as one of the leaders in Fintech innovation, and the place to be for financial entrepreneurs; however, when it comes to the cryptocurrency regulation in the UK, the country seems to be running a few places behind for the title of “world leader.”

In the UK, all activities encompassing the issuance of equity and debt are regulated by the Financial Conduct Authority (FCA). The FCA’s strategic objective is to ensure the seamless operation of relevant financial markets, and it achieves this objective by providing appropriate protection for consumers and investors, as well as by promoting effective competition in the markets.

However, when it comes to virtual currencies, the FCA maintains that “cryptoassets designed primarily as a means of payment or exchange would not generally sit within the scope of FCA authority.” Whereas the SEC and the CFTC play a massive role in crypto market regulation in the U.S, virtual currencies remain largely unregulated in the UK.

Virtual currencies don’t fit easily into the existing financial regulatory regimes, and the UK doesn’t specifically regulate them either. The FCA doesn’t consider virtual currencies to be currencies or commodities under the MiFID II and, therefore, has no jurisdiction over them. It does, however, have authority over activities related to virtual currency derivatives such as bitcoin futures, options, or crypto-linked ETFs (if approved).

Interestingly enough, the FCA’s position towards the growing number of ICOs in the UK has been somewhat blurry. On the one hand, the FCA never explicitly declared authority over security offerings in the form of ICOs/STOs, but on the other, it continually issues consumer warnings describing ICOs as “very-high-risk speculative investments” and FUD-triggering statements such as “Whether an ICO falls within the FCA’s regulatory boundaries or not can only be decided case by case.”

That being said, the UK’s authorities have taken a generally unadventurous but positive approach towards virtual currencies and the blockchain industry as a whole. The wait-and-see regulatory strategy has been recently substituted with a much-needed sandboxing program that allows for some form of cryptocurrency regulation in the UK, without actually having it.

On July 3 this year, the FCA announced that 29 companies have been accepted in the fourth regulatory sandbox, 11 of which are blockchain-related startups. Regulatory sandboxes enable blockchain startups to test their ideas, projects, and solutions in the UK market under a controlled regulatory environment, and can be contrasted with the American model, where no such scheme exists.

When it comes to cryptocurrency exchanges and custodians, even though they’re not under the FCA’s oversight, the UK authorities intend to apply AML regulations in order to comply with the EU’s 5th AML Directive.

Along the same lines, the Treasury has revealed their intentions to regulate cryptocurrency traders, requiring them to abide by KYC regulations and disclose their identities as well as report suspicious activities. This will, hopefully, add some sought-after legal certainty to the ecosystem.

Most banks in the UK, however, do not express the same “enthusiasm” as the government, and have been known to intentionally and systematically refuse support to virtual currency related transactions and businesses. This is detrimental to the still-developing blockchain industry in the UK.

Tax treatment of virtual currencies

In 2014, when Her Majesty’s Revenue and Customs (HMRC) published a guidance regarding the tax treatment of virtual currencies, the UK was one of, if not the first country in Europe to have a clear legal position on the issue – albeit “for tax purposes only.”

The HMRC guidelines clarify that: (i) mining income is not subject to VAT, (ii) any loss or gain arising from the holding and/or selling virtual currencies will be treated as gains made in other commodities or currencies, (iii) virtual currencies acquired and held for personal reasons instead of speculative purposes will probably not be subject to capital gains tax.

Worth noting here is that VAT is imposed by the EU, and according to the latest European Court of Justice decision – virtual currencies will not be subject to VAT. Furthermore, these guidelines have not been revised until the present day, even though the blockchain scene has evolved beyond recognition since 2014.

It seems that the UK policymakers are waiting to see how the other EU countries will tax virtual currencies, whilst preserving the perception as a more “light touch fiscal regime” when it comes to cryptocurrency regulation in the UK.

No more time to “wait-and-see” on cryptocurrency regulation in the UK

The global cryptocurrency industry is gaining new grounds relentlessly, and the UK authorities are under immense pressure to produce a comprehensive strategy towards virtual currencies as soon as possible. The rest of the EU countries are currently way ahead in terms of their legislative support for virtual currency related projects, and in the midst of Brexit negotiations, crypto firms will need some very compelling reasons to choose the UK over the EU.

The author is not currently invested in digital assets.


Banking cooperative Swift has published a new API standard for the pre-authorisation of funds in its latest bid to bring more efficiency to open banking in Europe.

The open banking initiative, facilitated by the EU's Payment Services Directive II, is heavily reliant on the use of APIs to link banks' payment systems with third party providers.

However a lack of standards within the API market runs the risk of increasing operational costs for all participants. As Swift states: "If each bank offers a distinct API, merchants and fintechs have to adapt to different data structures, workflows and security considerations for each one - adding complexity, cost and time for implementation."

Nor is the improtance of standards lost on Swift's banking membership. "We can already see that each country is developing their own formats and that sometimes individual banks are developing their own formats," said Hiroshi Kawagoe, geenral manager, Transaction Business Planning Department, Sumitomo Mitsui Banking.

"This kind of fragmentation may not be ideal as the banking industry progressively opens up more advanced services through API. Therefore there is a need to discuss standards, just as we have acheived with the Legal Entity Identifier (LEI) and in many other areas."

The latest standard is focused on the pre-authrisation of funds, allowing a payer's bank to segregate funds in advance of purchase, thereby guaranteeing payment.It is the latest effort from Swift to position itself as the defacto standards body for APIs, following its publicaiton of the Pay Later API standard earlier this year.


An overview of trends and developments with great impact over the use of cash in commerce

Cash – alive and kicking

Most of the times, cash is universal, ubiquitous, and untraceable, therefore it makes people have a sense of security. Not having cash may cause people to feel vulnerable, especially during power breaks or when ATMs are not working – thus, the cashless society dream does not seem, at the moment, very feasible.

Cash also makes people have a sense of independence from government oversight. 50% of the respondents surveyed in 2019 by card-issuing platform Marqeta in Spain, the US, the UK, France, and Germany for its consumer behaviour study admitted they have used cash to make payments with the particular purpose of not leaving a record of what they were buying. That is why cash is also a commonly used payment method when it comes to igaming, providing players with both anonymity and a streamlined way of funding online gaming accounts. For example, PayNearMe does just that, by enabling online account loading with cash.

Furthermore, the transition towards a cashless society is not uniform, as cash usage varies per country and across different age groups. If we take a look at demographic information provided by Marqeta’s survey, we notice that millennials already started using other means for payments. In the US, 49% of millennials said they prefer to use P2P payments instead of cash to pay someone back (20% of baby boomers are likely to do the same), while in the UK 44% of millennials have expressed this preference as well (compared to 21% of baby boomers).

Global overview of cash in commerce

The fluctuation of cash usage in different countries is also worth mentioning. While South Korea and Sweden, for example, have already started this transition to a cashless future, other countries, like Germany, show signs of concern when it comes to digital money. According to the Deutsche Bundesbank, 74% of all domestic transactions in 2017 were conducted via cash, especially for purchases under USD 23. Germans use debit cards provided by banks for around 18% of transactions and credit cards for about 2% of them, proving a low adoption of cashless payment methods.

Generally, across Europe, the use of cash is decreasing at two different speeds, according to G4S’s World Cash Report 2018. Some countries are reducing their use of cash in favour of non-cash (e.g., the Nordics, the Netherlands, the UK), while others still rely on cash, mostly in Southeast Europe. When it comes to the number of transactions in European countries, paper currency is often used in Germany, Austria, and Slovenia, where 80% (or more) of POS transactions were conducted with cash. In the Netherlands, Estonia, and Finland, however, cash was least used, the number of transactions ranging from 45% to 54%.

In the US, for example, the 2018 report on the Diary of Consumer Payment Choice (DCPC) shows that cash accounts for 30% of all transactions and 55% of transactions under USD 10, but there is a decline when it comes to cash usage. In this context, it may seem paradoxical that the amount of cash being issued is increasing. If 40 years ago approximately USD 90 billion in cash was in circulation, this number has increased roughly 20 times, to USD 1,7 trillion nowadays. In his book, Kenneth S. Rogoff – professor of Public Policy at Harvard University and former chief economist of the International Monetary Fund – argues that this is not a specificity of the US space, but rather a globally occurring phenomenon that lies at the core of some of the world’s most intricate problems.

When it comes to Asia, there is a strong discrepancy in cash usage between China and Japan. Cash in circulation in Japan is estimated to be the equivalent of over 20% of the country’s GDP, which is higher than China’s, with 9.5%. In Japan, kiosk payments are still very popular. By choosing this cash-based payment method, shoppers print a voucher or receive a reference number – and with it, they can pay for products at a kiosk, cash register at a convenience store, or bank branch. Cash on delivery is another popular payment method in Japan, allowing customers to pay from home when they receive purchased products. Konbini (convenience store) payments are also attractive, allowing Japanese customers to pay for online purchases in 24/7 convenience stores.

In LATAM, in countries like Peru and Colombia, cash-based payment methods amounted to more than 20% of ecommerce volume in 2016, with Mexico and Argentina close behind, with 19% and 18% cash transactions respectively – according to Worldline. In Brazil, the most popular cash-based payment method is Boleto Bancário, which is regulated by the Brazilian Federation of Banks, issued by banks at the request of merchants, and payable at over one million locations nationwide.

In Africa, there is a tendency to move away from cash-based payments, but things move at different speeds across the continent. Here, many local initiatives are underway. With a smartphone penetration of 60% and 56% of its population being banked, Kenya shows great improvement from 2016 to 2019. According to PPRO’s Payments and E-commerce Report for the Middle East and Africa, this growth has been driven by enhanced performance in mobile telephony and ecommerce, and Kenya’s digital economy is projected to boom. As presented by Boston Consulting Group, in 2018, Rwanda’s central bank announced the launch of a regulatory sandbox for testing digital payment solutions, aiming to go cashless by 2024.

Malawi has also experienced a rise in cashless transactions, while Ghana is digitalising with the aim of streamlining access to financial services. Nonetheless, according to the African Cash Report published by calleo in 2018, the African continent is still quite dependent on cash. Here, the introduction of digital and mobile payments cannot replace cash, especially in countries like Nigeria and Morocco, where there is low banking penetration.

Looking into the future

Cash cannot be hacked, it doesn’t rely upon POS technology, it is accessible, user-friendly, reliable, and trusted – hence its popularity. Nonetheless, undeclared payments in cash lead to tax gaps, and there are great costs associated with it. According to Boston Consulting Group, one of the main banks in the North American landscape spends approximately USD 5 billion every year just to process cash and check transactions and servicing ATMs – and the UK spends about GBP 1 billion a year for free-to-the-customer ATM withdrawals.

The payments landscape is, as one might expect, very diverse – however, worldwide, cash remains the leading payment method at the checkout for now, even if spend tends to shift from cash to cards and e-wallets, and the use of cash registers a decrease in every global region. Worldpay projects that, by the end of 2019, cash will be replaced by debit cards as the leading POS payment method, and by 2022, it will be surpassed by credit cards, debit cards, and e-wallets. What’s more, according to Marqeta’s survey conducted in 2019, 50% of the respondents believe that cash will disappear completely in the future.

In order to succeed in ecommerce across different regions, cash is still needed because it is relevant, and there is a high reliance on this payment method, both via kiosks and cash on delivery. Looking towards the future, we expect technological developments regarding payments to further impact cash usage worldwide.

This editorial was first published in our Payment Methods Report 2019 – Innovations in the Way We Pay, which provides a comprehensive overview of the up-to-the-minute trends, updates, and innovations in the payments space worldwide, depicting the key developments in the way people pay.

About Raluca Constantinescu

As Content Editor at The Paypers, Raluca is specialising in online payments, digital wallets, PSPs, mobile payments, omnichannel commerce, online retail, and cross-border transactions. She holds a Bachelor’s Degree in Foreign Languages and Literatures and has a wide background in editing and publishing.



Swiss financial authority FINMA offered guidance this week on anti-money laundering (AML) requirements for blockchain-based companies even as it granted broker-dealer licenses to two new blockchain companies.

FINMA considers AML to be “technology-neutral” and expects all payments, including blockchain transactions, to follow the requirements. The gist is simple: “Institutions supervised by FINMA are only permitted to send cryptocurrencies or other tokens to external wallets belonging to their own customers whose identity has already been verified and are only allowed to receive cryptocurrencies or tokens from such customers,” the regulators wrote.§

FINMA oversees Switzerland’s financial system, from banking to securities dealers and even Facebook’s cryptocurrency project, Libra. Earlier today it was reported FINMA officials met with U.S. Congressional Representatives over Libra.

“FINMA-supervised institutions are thus not permitted to receive tokens from customers of other institutions or to send tokens to such customers,” they wrote. Further, FINMA does not allow the passing of tokens from unregulated wallets and requires AML information for all parties.

In addition to this announcement, FINMA has issued the first “banking and securities licenses” to two blockchain companies, SEBA Crypto AG and Sygnum AG. These are the first companies registered in Switzerland as broker-dealers with a specific blockchain focus. These companies will be required to follow the new AML rules.

Gavel image via CoinDesk archives


Finnish telco Telia and local bank OP Financial have been showcasing the potential of 5G to deliver payments by face, installing the technology in an ice cream truck in Helsinki's Vallila neighbourhood.

Customers buying ice cream from the van have the opportunity to make payments with just their face using facial recognition technology from local firm Pivo.

The technology compares the customer’s face with a biometric template uploaded through a camera; the customer accepts the payment using pre-saved credit card details and the transaction is completed.

Janne Koistinen, head of Telia Finland’s 5G programme, comments: ”Facial payment is a good example of a service that benefits from the capacity increase and lower latency of 5G. 5G will also take the security of mobile connections to the next level, which is interesting for example for payment and other financial services."

Kristian Luoma, head of OP Lab, adds: ”Besides security, a smooth user experience is important for customers. 5G makes the service faster and is therefore the perfect partner for Pivo Face Payment. We believe that the trial with Telia opens a new window to the future.”