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UK Banks Hold Blockade Firmly – Bitcoin History in the UK

Last Updated March 4, 2021 4:44 PM
Joel Dalais
Last Updated March 4, 2021 4:44 PM

UK Banks1The United Kingdom has been the centre of Bitcoin discussion on and off for a while now. Ranging from its lack of regulatory oversight, inclusionary attempts, taxation clarification for cryptocurrency, consultations, and meetings. All leading to the current state of waiting on what will emerge in the regulatory framework for the Bitcoin sector.

Back in early 2013 I started my journey into the regulatory area surrounding bitcoin businesses and especially cryptocurrency exchanges within the UK. I spent a few months talking back and forth between the various agencies involved. Most of my time and effort over the proceeding months involved the Financial Conduct Authority (FCA ), Her Majesty’s Revenue and Customers (HMRC ) and Her Majesty’s Treasury (HMT ).

Though the discourse was more extensive than just emails, the email conversation can be read here, https://ibwt.co.uk/files/HMRC.pdf  (this is a pdf file). Neglected in the email conversation is the various discussions had by phone.

It should be noted that IBWT (In Bitcoin We Trust), was formerly known as FYB-UK. The business name changed after forming a new team in the late summer of 2013.

Throughout my research into this matter, I discovered that Digital Currency (or Cryptocurrency) exchanges could not currently be regulated under UK law as there was no provision to cover the relevant businesses.

With reference to your enquiries I need to discuss this with our Policy team, I hope to have an answer sometime next week.

After a certain amount of discussions and presentation of information during these months. On topic was how current regulations and law apply to businesses in this space (though I was focused on exchanges) the central policy team of HMT took the matter under their wing.

It was finally decided at the time that there was no requirement (nor was it possible) for digital currency exchanges to register with HMRC as an MSB (Money Services Business).


Coindesk was the first to report  this news back in early July, 2013. This article was the first ‘public’ statement that exchanges were exempt from regulation at the time. Unfortunately, even though requested, HMT were not able to give a timeframe at the time as to when they would make a public announcement regarding this matter.

With reference to your further enquiry unfortunately I cannot give you a timescale of when HM Treasury will make a public announcement regarding the Bitcoin market.

I was quoted as saying to Coindesk at the time that

“Regulation will definitely come into play at some time in the future, so it is in the best interest of businesses that think they are transacting as a money services business to still keep anti-money laundering and know-your-customer practices in play, so they’re prepared for when HMRC does come knocking”.

HMRC State Bitcoin Tax Guidelines

Over the following year, various exchanges started to emerge after IBWT (IBWT launched in September, 2013). And then occurred a series of efforts by individuals and the UKDCA to get a clearer picture than was previously stated by HMRC. The pre-existing taxation model for cryptocurrency can be seen from a Coindesk inquiry  to HMRC back in June (19th), 2013.

the tax system already deals with transactions in currencies other than sterling … traders would need to convert their profits into sterling before entering them into their UK tax returns.

In early March 2014 HMRC brought out clear guidance on how taxation is applied to bitcoin and other cryptocurrencies. For the most part, publicly reiterating what they had already been stating.

You can find the full brief from HMRC here .

However, in all instances, VAT will be due in the normal way from suppliers of any goods or services sold in exchange for Bitcoin or other similar cryptocurrency. The value of the supply of goods or services on which VAT is due will be the sterling value of the cryptocurrency at the point the transaction takes place.

The clarification straight from ‘the horse’s mouth’ was appreciated in many corners of the bitcoin sector, from miners, businesses and individuals. And business continued as it was before, with a bit more confidence and security in this public acknowledgement.

I wrote a piece for Bitcoin Magazine to describe the taxation outcomes; you can read this piece here, HMRC publicize Pro Bitcoin Stance. 

However, the issue of the banks remained.

Isle of Man Rises, Staggers, Continues Onwards!

Isle of Man
Isle of Man

The Isle of Man (IoM) has been in and out of the Bitcoin spectrum over the last year. Rising in the sector as a potential haven and destination for cryptocurrency business. In early 2014, the IoM was initially seen as a potential candidate for digital currency exchanges and the place to lead innovation in the financial industry.

This was until later in the same year when the banks closed any potential innovation and creativity that the IoM could offer. UK banks put their foot down and closed access to the traditional financial sector to bitcoin related businesses.

Capital Treasury Services were forced to close the accounts of any clients involved in bitcoin or cryptocurrency from its banking partners, HSBC and RBS. Making the IoM another potential avenue of growth that had fallen by the wayside.

In the most recent months, the IoM seems to have taken guidance from HMT’s actions (which we discuss below). In that, they have introduced digital currency exchanges and related businesses to already existing anti-money laundering (AML) laws from the 1st of April, 2015.

Differing from the approach that HMT is taking, in that HMT is working on designing specific criteria for related businesses so as not to overburden them. The IoM have made amendments to already existing legislation that might prove to be too burdensome to attract businesses and investment.

Though interestingly the new requirements place similar burdens as what already exists for financial bodies of the same nature for exchanges, but does not provide the benefit of customer protection that it provides for similar financial bodies.

All the Burdens and None of the Benefits.

Peter Greenhill, head of e-gaming in the department of economic development (IoM) had this  to say to the BBC last month.

We also passed through parliament the Designated Businesses Bill, which treats digital currency exchanges the same as any other company holding value for a client in escrow [a form of safe keeping]”

Be that a bank, estate agent or accountant – those come under registration with the Financial Supervision Commission.

The government is stopping short of offering customer protection on Bitcoin investments like the UK’s Financial Services Authority (FSA), which guarantees individual savings to the value of £80,000 in the event of a bank collapse.

There is to date no faster payment banks on the Isle of Man that provide services to exchanges.

And still the issue of the banks remain.

HM Treasury Opens Public Consultation

In late 2014 HMT opened a public consultation to the public through a Call for Information . Asking numerous in-depth questions they invited a response from all quarters, bitcoiners, businesses, banks, if you had an interest and were bothered enough, then they wanted to hear from you.

This went on for a month, from November to December. At the beginning of the December, HM Treasury closed its public consultation to review all the feedback it had received. A few months later in March 2015, HM Treasury released their public response  after reviewing all the public feedback it had gained from its earlier open public consultation.

The summary of this response consisted of initiating talks to develop a unique regulatory framework for exchanges and cryptocurrency where it was felt relevant. Such regulations will very likely include anti-money laundering and know your customer practices though it is unlikely that they will prove as onerous as existing regulations.

Also Read: UK Treasury to Regulate Digital Currency & Bitcoin

This can be surmised from the UK’s ‘open arms’ approach to cryptocurrencies. Allowing businesses to operate with impunity to date, they (HM Treasury) have expressed an interest for minimalistic regulations and for the banks to better co-operate in the supposedly friendly field of competition.

HM Treasury also gave £10 million to the Alan Turing Institute  for the purposes of Cryptocurrency research. Five UK Universities dedicated to the education, knowledge and research into the data sciences are joined as the Alan Turing Institute.

Alan Turing’s genius played a pivotal role in cracking the codes that helped us win the Second World War. It is therefore only right that our country’s top universities are chosen to lead this new institute named in his honour.

The Payments Systems Regulator – PSR 

The PSR is a little talked about body, and this is understandable as it is a very new government agency. The Payments Systems Regulator , or PSR, is an independent sub-body of the FCA that has been created by The Financial Services (Banking Reform) Act 2013 (“the 2013 Act”). The PSR may have emerged from the 2013 Act, but it has only now become fully operational as of April, 2015.

The PSR was created to act as a competition focused economic regulator for payment systems in the UK.


The 2013 (Banking Reform) Act defines a “Payment system” and grants the Treasury the power to designate payment systems, enabling the Treasury to bring a designated system under the review of the PSR.

HM Treasury may only designate a system to be reviewed under PSR if there are deficiencies in the design of the system, disruption in its operation and if either (but not limited to) would have serious consequences.

The 2013 Act provides that the Treasury may designate a payment system only if it is satisfied that: any deficiencies in the design of the system, or any disruption of its operation, would be likely to have serious consequences for those who use, or are likely to use, the services provided by the system.

There follows more details on the process of designating a payment system fit for review. These range from the number and value of transactions currently and potentially processes, the nature of the transactions, whether those transactions could be handled by other payment systems, the relationship between the system at issue and other payment systems.

You can read more details on this in section 2.2 here .

The PSR essentially is the new Financial Conduct Authority (FCA) subdivision ‘sic em’ body. The FCA is in charge of regulating a £75 trillion industry, and with recent scandals such as Libor and the Forex market , it could be argued that the body will be better served with a capable body that forces changes on mismanaged systems.

UK Banks, Coinbase & Fidor

UK Banks

Both Coinbase and Fidor  have recently been making strong public moves and claims of UK integration. Coinbase has created new trade windows that allow for GBP trading. However, they still require customers to internationally wire money to their banks outside of the UK. This, unfortunately, does not make it a ‘UK exchange’ by most people who live in the UK’s reckoning.

Mt. Gox allowed GBP to be traded on its exchange, but you had to wire money to Japan (or Poland if you were fully verified). You would have to pay the exchange fee to transfer your GBP into Euro, and then receive euro in your account, if you wanted GBP you would have to trade your euro into GBP on the Mt. Gox platform.

Then withdrawing would convert your GBP to Euro (face a fee if converted to Euro on Mt. Gox or face the standard exchange rate fee again), and then changed it back to GBP. Also included was your international wire transfer fee, which varies from bank to bank.

Fidor still has yet to make an actual foothold into the Faster Payment systems network, which would give any exchange under Fidor a clear technical (arbitrage) edge over any other exchange. I knew of Fidor intentions for the UK nearly two years ago; it has been a long time coming, and I will believe it when it happens.

Both have reported moves to establish themselves fully within the UK, as their next target for expansion. One is either blocked by non-existing regulations to allow them to acquire a bank account (Coinbase). The other (Fidor) is being blocked from linking with the existing framework, even though they do not directly deal with bitcoin or other cryptocurrency; they just provide banking to cryptocurrency related businesses.

It is most likely that no one will get faster payment access until regulations force the UK big four  into compliance, or one of the big four capitulate and start working with a bitcoin related business.

The Winds of Change?

Since the arguably favorable response to the public feedback HM Treasury had released, fingers have been twiddled in anticipation of further progress along the paths that HM Treasury is taking us.

A new government  has been elected voted upon this May 7th, and will come into force on May the 18th, but the people behind the front of the play stay the same and motions that have already been started will continue.

Will a push in the financial services for competition, growth and acceptance of cryptocurrencies continue? I like to think so, and that wise heads remain behind the scenes. And I like to hope (against expectations) that a new government will help to usher in a new era of financial equality.

And it behoves me to mention the birth of the baby Princess, Charlotte Elizabeth Diana , fourth in line, born this May the 2nd. A baby princess, a new government, PSR oversight into the traditional payments sector, maybe the dawn of the true emergence of cryptocurrency in the UK if regulations emerge favorably over the next year.

We can but hope these are signs of a new beginning.

Charlotte Elizabeth Diana
Charlotte Elizabeth Diana