UK Crypto Legislation Comes Into Force – Police Not Required To Make Arrest Before Seizing Crypto
The UK's recent expansion of powers to seize and regulate cryptocurrencies has sparked a backlash among the UK crypto community. | Credit: Aaron Chown - PA Images / Getty Images.
Key Takeaways
- The UK has implemented new legislation granting the National Crime Agency and police unprecedented powers designed to combat cryptocurrency crime.
- This move has sparked a debate regarding privacy rights and the balance between security and individual freedoms in the digital age.
- Alongside these new powers, the UK government is fast-tracking the development of a comprehensive regulatory framework for cryptocurrencies.
The UK government’s recently implemented legislation grants extensive powers to law enforcement agencies, including the National Crime Agency (NCA), to seize, freeze, and destroy crypto assets linked to criminal activities – without requiring an arrest.
These measures aim to disrupt the use of digital currencies for illicit purposes. However, they have sparked a backlash among the UK crypto community, who see these measures as an infringement on their freedoms and a deterrent to innovation in the sector.
New Legislation Targets Crypto Criminals
Recent assessments by the NCA’s National Assessment Centre suggest that crypto transactions tied to criminal activities in the UK could have amounted to at least £1.2 billion in 2021 alone.
The UK’s updated powers are outlined in a government press release that outlines how the anonymity provided by cryptocurrencies has posed significant challenges in tracing the proceeds from such crimes as drug trafficking, fraud, and terrorism financing.
Security Minister Tom Tugendhat highlighted the broader impact of these reforms, “These are dark times for criminals who utilize modern technology for illicit gains. Our message is clear: crime does not pay.”
The updated powers have already proven effective in recent operations. In January 2024, the NCA, in partnership with the US Drug Enforcement Administration, managed to seize assets worth $150 million from a major drug trafficking operation involving cryptocurrencies. Other successful actions include the seizure of three non-fungible tokens (NFTs) in a VAT fraud investigation and a significant operation against a dark web counterfeit drug sale network.
Moreover, these powers extend to supporting victims of crime, who can now petition for the release of their assets seized in crypto-related crimes.
Adrian Searle, Director of the National Economic Crime Centre, welcomed the new powers, emphasizing that “These changes will dramatically improve our ability to pursue criminals who rapidly move large sums and hide their transactions using cryptocurrencies.”
Privacy Coins Singled Out
The UK government identified privacy coins as particularly problematic and “not conducive to the public good.” Unlike widely used cryptocurrencies such as Bitcoin and Ethereum, which operate on transparent blockchains where transactions are traceable albeit pseudonymous, privacy coins provide enhanced anonymity. These currencies use various technologies to obscure the trail of transactions, making it extremely difficult to trace them back to any individual.
The new regulations allow for the destruction of privacy coins seized in criminal investigations, highlighting the government’s stance on their potential misuse for illegal activities.
UK Crypto Community Claps Back
Notwithstanding the government’s claim that this expansion of powers is designed to target criminals, the announcement has sparked a backlash among the UK crypto community, who see these measures as an infringement on their freedoms and a deterrent to innovation in the sector.
Some have taken to social media to voice their concerns and propose alternatives that they believe could better balance crime prevention with the growth of the crypto industry.
One X user expressed frustration over the approach to seize assets before confirming their legality, questioning, “If the UK Home Office can confirm legal crypto transactions, why go after crypto assets? Instead, why don’t they investigate if it was legal or illegal before freezing?”
Another X user criticized the strategy as being counterproductive to technological advancement, suggesting a more integrated solution: “Wrong move. A crypto exchange run by the UK government and a mandatory requirement for citizens to have an account will solve many issues related to crimes. Banning cryptos will leave the UK behind China and many other nations in terms of technology adoption and economic growth.”
Impact on UK Investors
Even before the enactment of dedicated crypto legislation, UK-based investors have already felt the effects of the evolving regulatory landscape. With only a select few crypto exchanges currently sanctioned by the Financial Conduct Authority (FCA), investment options have become limited.
Binance halted the acceptance of new UK users last October and has since faced challenges in re-entering the market. Similar restrictions have been applied to other major platforms like HTX, Bitfinex, and KuCoin, which have failed to meet the FCA’s stringent registration requirements. The regulator has also warned investors to steer clear of 143 crypto exchanges that appear on its unlicensed firms’ warning list.
Home Secretary James Cleverly remarked on the development, stating, “Criminals should never benefit from breaking the law. These measures will significantly enhance our capabilities to tackle the evolving threats from crypto-enabled crimes and bolster our national security.”
Accelerating Crypto Regulation in the UK
Despite having taken years to lay the foundations of crypto regulation with the 2023 Financial Services and Markets Act (FSMA), the UK government is now poised to introduce a comprehensive regulatory framework for the crypto space as early as June this year.
“We are now working at pace to deliver the legislation to put our final proposals for our regime in place,” stated Economic Secretary Bim Afolami at the Innovate Finance Global Summit. Just a year after the FSMA included the first-ever reference to crypto assets in UK legislation, the forthcoming framework aims to bring crypto exchanges, custodians, staking services, and stablecoin issuers within the regulatory perimeter.
With both the US and the UK facing critical elections, we may be witnessing a rush to move crypto regulation forward amid election pressures.
This legislative update is part of a broader strategy to adapt UK laws to the fast-paced technological advancements they say criminals are increasingly exploiting, ensuring that law enforcement remains one step ahead in the digital age.
