British Regulators Ruminate on Crypto Rules While Standing Firm on Crypto Taxation

A significant crypto market slump has brought concern and alarm, but also some unexpected side benefits.

One such benefit comes from how financial regulators in the United Kingdom now appear sufficiently relaxed about crypto and its growth that they can take their time to carefully consider fair regulation.

Without the pressures of a rapidly climbing crypto market, statements from officials have suggested that they will now avoid hastily implementing legislation - and as a result, the cryptocurrency industry in Britain will ultimately benefit from rules that protect customers and innovation alike.

Clearly, these aren't the remarks of an organization aiming to let crypto self-regulate according to its own needs, and other noises from government also indicate that the U.K.'s regulatory regime may eventually end up being expanded and tightened.

In a September report, the U.K. parliament's Treasury Committee called for new regulations to be introduced so that the FCA would have the power to police all aspects of the crypto industry, and not just derivatives like CFDs. "It's unsustainable for the Government and regulators to bumble along issuing feeble warnings to potential investors, yet refrain from acting," said the committee's chair, Nicky Morgan MP. "At a minimum, regulation should address consumer protection and anti-money laundering."

Despite what Reuters reported concerning Gillian Dorner's and Christopher Woolard's speeches, it would seem that at least Woolard and the FCA are still intent on taking a fairly hard line on crypto.

"It is the case that an individual receiving cryptocurrency instead of fiat money for freelance or employment work carried out, will be taxable on the amount of cryptocurrency received, and will also be taxable in case such cryptos are later on sold at a gain. Normally the rule would be that the cost basis of the cryptos received would be equal to their fair market value at the time of receipt. Thus a taxable gain would only accrue to the extent that the sales price is higher than the fair market value at the time of receipt. In other words, there should normally be no double taxation if the cryptos are subject to income tax and capital gains tax."

As Schmidt says, employees getting paid in crypto will be subject to income tax and they'll pay capital gains tax if they make a certain amount of profit on their crypto, which - for 2018/19 - is 11,700 pounds or above.

While this all might be disconcerting for anyone who wants cryptocurrencies to be subject to permissive regulation or for the industry to regulate itself, it's arguable that bringing taxation and the FCA to bear on crypto is an important step in making it reassuringly 'mainstream' and 'familiar' for would-be adopters.

In other words, regulators will be forced to move slowly on crypto regulation, regardless of whether the market itself is accelerating or decelerating.