Senior Associate and employment law specialist Joanne Leach comments on the new laws just introduced that will ban bosses who fail to pay their staff the minimum wage from hiring workers from abroad for up to two years.
Joanne’s comments were published in Personnel Today, 28 November 2024, and can be found here.
“Tougher rules to prevent companies exploiting cheap foreign labour are certain to be welcomed. Workforces are strengthened by the diversity brought to organisations by migrant workers and those individuals deserve not to be exploited.
“However, extending the power of Home Office officials to withdraw a company’s sponsorship licence if they breach employment laws could have potentially catastrophic consequences for businesses which rely on an overseas workforce. This announcement should therefore serve as a wake-up call to all employers that they must comply with employment laws as well as immigration rules.
“The government’s intention to expand the circumstances in which sanctions can be issued to include employment law breaches and extend the penalty from being banned from hiring overseas workers from one year to two will shift the compliance landscape considerably. However, it seems that the proposed expansion only applies to companies. It may be more effective to increase the sanctions on individuals who facilitate these breaches – perhaps further changes are to come before the draft legislation reaches parliament.
“It is uncertain when we can expect this law to come into effect. Companies effectively have a grace period to get their house in order. To do so, they should be taking an active approach to ensure compliance in all areas. Employers should review their policies and procedures to ensure they are up to date and meet minimum standards.
“It is hoped the government also consults early as to how this change can be implemented. It is unclear how a company will be judged to be in breach of employment laws – will this finding derive from a successful employment tribunal claim or will a new regulatory body be tasked with assessing failure to comply with minimum standards?”
If you would like some advice on how these new regulations might impact you as an employer, please contact our Employment team.
Posted on: November 21st, 2024 by Hugh Dineen-Lees
We are pleased to report that Lawrence Stephens has advised regular client Blue Shield Capital on a £16.7 million loan for a UK landlord and BTR operator specialising in city centre rental living.
This 12-month facility, across two assets in Manchester and Leeds, will support their borrower in redeeming their existing debt and restructuring their portfolio. Blue Shield Capital is a fast-growing property lending firm who provides flexible financing solutions for property owners and investors. This deal is one of the largest they have completed to date and is the latest in a number of fast-moving deals they have undertaken supported by our team.
Ajoy commented: “We are delighted to have supported Blue Shield on one of their largest deals to date. Credit to the dynamic Lawrence Stephens’ team for delivering a fantastic outcome for our client”.
Posted on: November 18th, 2024 by Hugh Dineen-Lees
Director and Head of Blockchain and Digital Assets Matt Green comments on the introduction of the Property (Digital Assets etc) Bill, and argues that this legislation will provide greater clarity to the treatment of cryptocurrencies and digital assets under UK law.
Matt’s comments were published in eprivateclient, 15 November 2024, and can be found here.
“Property rights allow individuals to identify and demarcate ownership. In turn, being deprived of property creates a right in either damages or for that exact property to be owed. This ensures there’s greater market confidence when dealing with property, as there are clearer legal rights to ownership, control and general treatment of that property.”
“Historically property fell into two main categories – things that are tangible and exist physically or a contractual right enforced by a legal system (such as a debt claim or contractual right to goods). Digital assets (including cryptocurrencies, digital files and records, email accounts and certain in-game digital assets, domain names, even verified carbon credits) do not fall neatly into either category.”
“Use of a negative definition as proposed in the Digital Assets Bill, future proofs how property is treated, preventing the need to return to the issue for decades to come. To give an exhaustive list of what property is limits what may or may not exist going forward, so the wording is designed to ensure policymakers and the public at large are given that freedom to treat “things” as property when required, as well as the ability to sensibly divert from the rigid definition of property when required.”
“Although a welcome change for a legal system previously often unequipped to deal with such matters, enabling a “thing” to be property even where it is not tangible or creates a legal right may create inconsistencies at common law given the broad strokes definition. However the benefit of future proofing far outweighs the potential for inconsistencies and the Law Commission included guidelines as to what may constitute property under this Bill to assist decision makers.”
“As more “things” become property at a legal level, we may see the implementation of further laws, or even Judge’s decisions, which sweep up any unanswered issues. Overall, this Bill is a huge win for those dealing in digital assets, providing much needed clarity in an economy already utilising this technology at large.”
Lawrence Stephens is delighted to have advised The Compliance Group on the acquisition of Electrical Test Midlands (ETM), a leading specialist in electrical testing and compliance with over two decades of expertise.
Established in 2019, the Compliance Group is a leading integrated provider of safety and regulatory compliance services across electrical, fire and water. They help their clients to reduce risk, improve safety and assure regulatory compliance in a wide range of sectors.
The Group, one of the Ansor portfolio of companies, has become one of the UK’s leading compliance businesses through a combination of organic growth and acquisition. This is the Group’s fourth acquisition in 2024, following the earlier acquisitions of CT Fire Protection, Fire Safe Services and Intersafe. Lawrence Stephens is proud to have advised on all these transactions.
The team was led by Managing Director Steven Bernstein, with assistance from solicitors Isobel Moran and Carla Bernstein.
Phil Campion, Managing Director of Compliance Group Electrical, said of the deal: “ETM brings an exceptional level of technical skill, a commitment to customer service, as well as shared values of responsibility and sustainability. We are excited to welcome them into Compliance Group’s Electrical Division and further strengthen our position in the electrical safety and testing space and offer more comprehensive services to our clients across multiple sectors.“
Leading full-service law firm Lawrence Stephens is pleased to announce the appointment of dispute resolution specialist Dominic Holden, who joins as a Director in its Dispute Resolution department.
News of Dominic’s appointment was published in Commercial Dispute Resolution here and The Legal Diary here
Dominic specialises in substantial civil fraud claims, as well as complex data and hacking claims and multi-national, investigatory, enforcement and asset tracing work.
Prior to joining Lawrence Stephens, Dominic was Head of Litigation at Burlingtons in Mayfair.
Dominic advises on a broad range of commercial disputes and has particular expertise in matters involving complex and cross-border elements. Notable highlights include acting for aviation magnate Farhad Azima in his long-running and high-profile litigation against Ras-Al Khaimah’s sovereign wealth fund and its advisers, international law firm Dechert LLP and former partner Neil Gerrard.
Dominic also advises on breach of trust, professional negligence, contentious insolvency and director, shareholder and/or partnership disputes.
With a wealth of experience in litigation and disputes, Dominic’s appointment reflects the continued and exciting growth of Lawrence Stephens in recent years, while bolstering both the firm’s existing Dispute Resolution offering and cross-practice expertise.
Commenting on his appointment, Dominic said: “I am excited to begin the next chapter of my career with Lawrence Stephens. It is a pleasure to be working alongside a dynamic team of leading practitioners across a range of sectors, helping clients to navigate a range of high-profile and complex international disputes.”
Lawrence Kelly, Director in the Dispute Resolution department at Lawrence Stephens, commented:“We are delighted to welcome Dominic to the Lawrence Stephens team. His experience and tenacity complement our Dispute Resolution offering and broaden our cross-departmental expertise – allowing us to continue to offer our clients bespoke and integrated legal advice.”
Matt Green, Director and Head of Blockchain and Digital Assets and Technology Disputes at Lawrence Stephens, commented: “Dominic is a truly first-class litigator with a wealth of experience in technology disputes including litigation relating to hacking and data issues, I look forward to working with Dominic closely on a range of technology related matters at Lawrence Stephens.”
Welcome to the In Early podcast, where host Matt Green dives into the world of digital assets and technology. In this episode, Matt speaks to both Marcin Zarakowski and Roman Bieda, of Token Recovery, a Swiss outfit specialising in “combining technical expertise, legal proficiency and a swift, discreet, end-to-end process devised to get your property back”.
Matt also asks them about their backgrounds at BSV and Coinfirm respectively, and more about the operation, how Token Recovery take on victims of fraud where crypto assets are lost following a hack or scam, and how they work with lawyers, like me, law enforcement, and blockchain analytic services like Global Ledger to navigate the recovery process.
Key takeaways from Marcin Zarakowski and Roman Bieda
– Their backgrounds, including at Coinfirm, and EU Blockchain Observatory and Forum how Token Recovery was formed and its mission, with Roman referring work involving ChipMixer;
– How Token Recovery take on victims of fraud where crypto assets are lost following a hack or scam, and how they work with lawyers, law enforcement, and blockchain analytic services like Global Ledger to navigate the recovery process;
– Each of their processes “Consult and Review”, “Trace and Evaluate”, “Plan and Authenticate” and “Enforce and Reclaim”;
– Issues with the recovery process and how they are overcome;
– The role of transaction monitoring at crypto-exchanges and whether that’s a good tool for preventing crime.
Matt asks them about their backgrounds at BSV and Coinfirm respectively, and more about the operation, how Token Recovery take on victims of fraud where crypto assets are lost following a hack or scam, and how they work with lawyers, like me, law enforcement, and blockchain analytic services like Global Ledger to navigate the recovery process.
Rachel Reeves finally delivered the first budget of the new Labour Government on 30 October 2024. Following intense speculation beforehand (including our own!), industry commentators in the aftermath of the announcements were suggesting that the budget was not as dramatic as they had expected. Perhaps this was more down to the carefully thought-through campaign leading up to the announcements and an excellent presentation of the changes on the day.
Most commentators have, however, pointed out that these changes will mean that businesses and entrepreneurs will be paying more tax, in some cases as soon as today. Now that the dust has settled and further analysis has taken place, we can take a look at the key changes introduced and their implications for owner-managed businesses.
Capital Gains Tax (CGT)
Business owners considering selling their company will be very interested in any changes to CGT. These were keenly anticipated, and it was confirmed that these and the tax on carried interest will rise from April 2025.
With immediate effect, the rates of CGT increased from the current 10% (for basic rate taxpayers) and 20% (for higher and additional rate taxpayers) to 18% and 24% respectively. There are special provisions for contracts entered into before 30 October 2024 but completed after that date. Anti-forestalling rules were also introduced with immediate effect which can, in certain circumstances, apply to unconditional contracts entered into before 30 October 2024 which were not completed by then. The rates for selling second properties remain at 18% and 24% respectively.
The CGT rate for Business Asset Disposal Relief (BADR), which can apply to lifetime gains of £1m on certain disposals by employees and directors in their unlisted businesses, will continue. However, the tax rate will increase from the current 10% to 14% for disposals made on or after 6 April 2025, and from 14% to 18% for disposals made on or after 6 April 2026. It has been calculated that this will mean an increased bill of up to £80,000 for those planning to sell their businesses after April 2026.
Investors’ Relief (IR) provides for a lower rate of CGT to be paid on the disposal of ordinary shares in an unlisted trading company where certain criteria are met, previously subject to a lifetime limit of £10m of qualifying gains for an individual.
It is aimed at encouraging entrepreneurial investors to inject new capital investment into unquoted trading companies.
The CGT rate for IR, which applies in similar circumstances to BADR but where the investor is unconnected with the business, will increase in parallel with the BADR rates. Furthermore, the lifetime limit for this relief will also reduce from £10m to £1m for disposals made on or after 30 October 2024, significantly limiting its financial benefit going forward.
Carried interest changes
Carried interest refers to the performance-related rewards received by fund managers, primarily in the private equity industry. Previously, carried interest was taxed at lower capital gains tax rates, compared with income tax rates. The Budget changes included an increase in the CGT rate for all carried interest gains to a new flat rate of 32%, applying to carried interest arising on or after 6 April 2025. This is a temporary measure ahead of wider reforms that will apply from the following tax year. From 6 April 2026 a specific tax regime for carried interest will be introduced, moving it from the CGT framework to income tax. All carried interest will then be treated as trading profits and subject to Income Tax and National Insurance Contributions (NICs). However, the amount of ‘qualifying’ carried interest subject to tax will be adjusted by applying a multiplier resulting in an effective tax rate at 34.1% including NICs. Some might see this change as somewhat cosmetic, but it seeks to deal with some of the negative perceptions about carried interest representing remuneration rather than true capital gains.
These are all significant changes but, according to an analysis by Grant Thornton, this “still presents an attractive environment for management incentives and investors and is unlikely to discourage ongoing deal activity”. They “therefore expect the impact on M&A to be less severe than anticipated with the announcements ensuring the UK remains an attractive and internationally competitive environment for investors”.
Changes to Inheritance Tax (IHT)
While the CGT announcements were not as drastic as some had been speculating, the IHT reforms present a substantial shift in the tax landscape, especially for entrepreneurs and business owners. The changes introduced in the budget have particularly alarmed farmers and small business owners as from 6 April 2026, a 20% tax rate – half the headline inheritance tax rate of 40% – will be applied to the value of farms and businesses worth more than £1m when they are passed on.
The existing 100% business property relief and agricultural property relief will continue only for the first £1m of combined agricultural and business property after 6 April 2026. The rate of relief will be 50% thereafter, effectively making this a 20% IHT charge.
This presents a risk for family business owners as well as their companies, which will no doubt have to play a major part in funding any IHT that is due.
Changes to National Insurance contributions
From April 2025, employers’ NICs will increase from 13.8% to 15%. The threshold at which employer NICs become payable will fall from £9,100 to £5,000. To help mitigate these additional NICs costs for smaller employers, the employment allowance (which allows businesses whose annual NICs bill is less than £100,000 to reduce their NICs costs) will increase from £5,000 to £10,500 per year, and will apply to all businesses as the £100,000 threshold will be removed.
These changes present a challenging scene for our retailer and hospitality clients. The changes in NICs will be accompanied by increases to the National Minimum Wage and National Living Wage rates. This rising cost base will be particularly felt by people heavy businesses, perhaps making life on the high street even harder.
Director and Head of Regulatory Solutions Ricardo Geada explores the recently announced ban on single-use disposable vaping products, and argues that it may cause non-nicotine products to be caught in this regulatory dragnet.
Ricardo’s article was published in The Times, 31 October 2024, and can be found here.
Last week, the government confirmed that the sale and supply of single-use disposable vapes will be banned in England & Wales. The ban, which will come into force from next June, was inevitable, and the devolved nations of Scotland and Northern Ireland are set to follow suit.
Its stated intention is to protect children’s health and to prevent environmental damage. Some aspects are positive. For example, limiting flavours and colours that appeal to under 16-year-olds is a sound approach to minimising underage user numbers. But however well-intentioned, the ban will probably lead to an increase in both the sale and use of illicit, unregulated vaping products. Illegal vapes are much more likely to contain other harmful chemicals, which could, in turn, create serious public health issues.
Single-use vape legislation, first announced in January by the previous Conservative government, was not enacted before the July general election. The new Labour government then picked up the baton. But simply because cross-party consensus exists in principle does not automatically make legislation right in practice. Improper use could also be limited by implementing better enforcement on trading standards to prevent children under 16 having access to vapes.
Manifestly, the most effective way to prevent the unsafe use of vaping products is to create a robust regulatory framework that can be properly enforced by trading standards, unfortunately they like many other government departments lack the adequate funding and resources required.
Nonetheless, measures must be taken to address safety and social concerns surrounding disposable vapes, such as underage use and potential fires resulting from the lithium-ion batteries used in them, as well as the adverse environmental effects of litter and the lack of sustainability in single-use products. According to Defra, five million single-use vapes were either littered or thrown into general waste every week last year.
To the extent that it is both practical and financially feasible, companies that sell single-use vapes may have to retrofit their products in order to make them compliant with the new regulations.
But there are other consequences: the single-use ban extends to both nicotine and non-nicotine-based products. It therefore includes Cannabidiol (CBD) vapes which do not contain nicotine and are non-addictive. In fact, the reverse may apply, CBD vapes are heralded by some advocates for their potential and varied health benefits.
Although CBD vaping has been on the rise in recent years, unfortunately for companies that manufacture CBD vapes, their sector is still relatively small and does not have the financial resources of big tobacco. So, for many of these CBD companies it may prove difficult to access the necessary finance to re-engineer their existing products in order to bring them in line with the imminent regulations.
Only time will tell whether this ban will have the desired effect or if it will simply open up untested and harmful vape products on the illicit market.
As the Autumn Budget approaches on 30 October 2024, speculation is rife about potential changes. Labour has pledged to make the tax system fairer, delivering economic stability with tougher spending rules, and growing the UK economy at the same time.
There has been much commentary regarding how to address the ‘£22bn black hole’ in the government’s finances identified by the incoming government. But having ruled out changes to the rates of the UK’s major taxes, the government has been left with fewer options to raise revenue. The implications of these for owner managed businesses could be significant, particularly changes to Capital Gains Tax (“CGT”), Business Asset Disposal Relief (“BADR”), increases to National Insurance Contributions (“NIC”) from Employers, and changes to Inheritance Tax (“IHT”) Business Relief (“BR”).
Here’s a look at what might be on the horizon:
Increase in CGT rates
Presently, the CGT rate for basic rate taxpayers is charged at 18% on disposal of residential property and 10% for all other assets. The CGT rate rises to 24% on residential property and 20% on other assets for higher or additional rate taxpayers.
In addition, if you qualify for BADR, CGT is charged at a reduced rate of 10% for the disposal of qualifying business assets.
Compared to income tax, where higher and additional rate taxpayers are charged 40% and 45% respectively, CGT is significantly lower.
As such, it is widely speculated that the Government may increase the rates of CGT. There are two potential methods being considered. The first approach involves aligning the lower CGT rate on all other assets with the higher rate applied to residential property, thereby creating a uniform CGT rate for all asset disposals. Alternatively, the Government might adopt a more aggressive strategy by aligning CGT rates with income tax rates.
Reducing or removing the CGT annual exemption
Individuals currently benefit from an annual exemption of £3,000 for CGT. In recent years, the annual exemption has gradually decreased, with the latest reduction to the CGT annual exempt amount taking effect in April 2024, lowering it from £6,000 to £3,000.
In line with recent trends, where the annual exemption has gradually diminished, it would not be surprising to see the annual exemption being reduced further or even being removed altogether.
Reduction or removal of the lifetime limit for BADR
As set out above, BADR entitles certain individuals (if they qualify) to benefit from a reduced rate of CGT. Currently, there is a lifetime limit of £1 million, thereby allowing entrepreneurs to benefit from a lower rate of CGT on the first £1 million of lifetime chargeable gains.
It is speculated that the Government may either lower the £1 million lifetime limit, reducing the tax savings available for investors or entrepreneurs.
Alternatively, the Government may opt to abolish BADR entirely. Business owners would have to pay the standard 20% (if not more if the government decide to increase the CGT rate) on all gains.
Increases to National Insurance Contributions from Employers
The Labour party committed in its manifesto not to increase national insurance contributions for working people. However, it did not rule out increasing the contribution from Employers which has led to speculation from informed commentators that they may increase this by 1%, making the new rate 14.8%.
While on the face of it, the predicted increase affects only employers, however there are concerns that raising employer NICs in an already stretched economy would negatively affect growth, ultimately leading to businesses having less money to invest in their staff, so that the burden would nevertheless ultimately fall largely on working people.
The Office for Budget Responsibility has commented that any rise in employer NICs would be passed onto workers and ultimately to consumers. Businesses may respond to the rise by limiting pay rises, reducing staff numbers, freezing recruitment and scaling down employee benefits. There are also arguments that the increase may complicate and distort the tax system and the jobs market, stymying the economy.
Changes to Inheritance IHT Business Relief
When children are an integral part of the running of a business, many business owners choose to gift or transfer shares in their business to them. Gifts such as this may not only be subject to CGT, but may also be subject to IHT. In these instances, BR may be available to reduce any unexpected IHT arising.
Where available, the relief reduces the taxable value of qualifying assets by either 50% or 100% depending on the circumstances.
Rumours ahead of the upcoming Budget are suggesting that we could see changes to IHT BR. This could now be capped at anywhere between £500,000 and £1m per person, removing the reliefs that currently apply without limit on qualifying assets meeting certain requirements. IHT Business Relief changes could the have a significant impact on business legacy.
When will these likely changes happen?
It is unclear what date that these changes will take effect from. There is potential that these changes may be brought in with immediate effect following the conclusion of the Autumn Budget from 30 October.
Alternatively, the Government could choose for any changes to the CGT rates to take effect upon the commencement of the new tax year – 6 April 2025.
The Government’s final decisions will be revealed on 30 October 2024 and there is considerable uncertainty what the upcoming changes may be. Please do not hesitate to contact us for further details about how the upcoming Autumn Budget may impact you.
We are delighted to share that Lawrence Stephens has been appointed to LendInvest’s Bridging panel.
Launched in 2008, LendInvest has grown to be a leading platform for property finance, offering short-term, development and buy-to-let mortgages to intermediaries, landlords and developers across the UK. Since then, they have lent more than £3 billion of mortgages and have helped to put thousands of new or improved homes into the UK housing market.
Leanne Ardron, Director of Bridging Finance at LendInvest said: “Lawrence Stephens will play an important role in supporting our growth objectives. With a commitment to excellence and responsiveness, there is good alignment with LendInvest’s ambition to ‘getting things done’”.
Arnold Enefé, Bridging Operations Change Manager at LendInvest added: “As our business continues to grow, it’s important for us to extend the range of advisers with the skillset and experience of bridging specialists such as Lawrence Stephens”Director and Head of Real Estate Finance, Gregory Palos, commented: “Ambitious organisations like LendInvest are core to our focus on Financial Institutions. We have enjoyed working with them since being appointed to their Development Panel in 2019 and we are delighted to formally extend what is already a very good relationship”.
Lawrence Stephens looks forward to this further collaboration with LendInvest in helping their clients achieve their objectives.
Senior Associate Asim Arshad examines the FCA’s first criminal prosecution over the unlawful operation of crypto ATMs, and discusses the wider implication of this crackdown for both lawyers and crypto businesses in the UK.
Asim’s article was published in Law360, 11 October 2024, and can be found here.
On Sept. 10, the U.K.’s Financial Conduct Authority launched a criminal prosecution against Olumide Osunkoya, the first of an owner of a firm enabling crypto asset trading, who pled guilty to the charges. The regulator announced that it had secured its first conviction on Sept. 30 for two offenses relating to the unlawful operation of multiple crypto automated teller machines that were not registered with the FCA.[1]
This article will examine the wider implications for lawyers of that decision.
The FCA alleges that, between December 2021 and September 2023, machines operated by Osunkoya across multiple locations processed crypto transactions with a combined value of £2.6 million ($3.4 million).
It is clear that the regulator is starting to clamp down on crypto activities associated with money laundering.
The FCA confirmed that this is its first criminal prosecution relating to unregistered crypto asset activity under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
Over the past two years, the regulator has inspected dozens of locations suspected of hosting crypto ATMs, and last month stated that there are no legal crypto ATM operators in the U.K. Therese Chambers, the FCA’s joint executive director of enforcement and market oversight, said: “If you’re using a crypto ATM, you are handing your money directly to criminals.”[2]
Overly Aggressive
The FCA’s position is clear: Crypto ATMs are inherently problematic. As a result, legitimate operators who value regulatory compliance are being actively deterred from considering the U.K. as a potential jurisdiction in which to locate them.
The prosecution of Osunkoya demonstrates the FCA’s commitment to taking enforcement action against unregistered crypto asset businesses. It is an unambiguous signal to those operating within the sector that the regulator will actively pursue transgressors via criminal charges, civil proceedings, or both.
This is not unprecedented. Through previous enforcement action, the FCA has shown itself willing to act, not least because firms operating in this sector are perceived to be a greater risk in terms of money laundering and potential misuse by bad actors.
In its inaugural crypto-related enforcement action in July, the FCA imposed a £3.5 million fine on CB Payments Ltd., part of the Coinbase Group, for breaching requirements imposed under the Electronic Money Regulations 2011.[3]
Crypto ATMs
In their simplest form, crypto ATMs enable users to deposit cash that is converted into crypto-assets. The machine records the deposit, either generating a wallet for the user or requesting the user’s public wallet address to which the crypto can be sent. Operators typically earn fees from these transactions.
Crypto ATMs are often fitted with a camera that records the user making the deposit; some also require the user’s ID documents to be scanned, allowing their details to be recorded.
This functionality enables easy, almost immediate conversion of cash to crypto. Some ATMs offer bidirectional functionality, enabling both the purchase of crypto and the sale of crypto for cash. Some ATMs require little or no personal information, providing the user with the additional benefit of privacy, or even complete anonymity.
Although crypto ATMs are not inherently illegal, to operate one requires registration with the FCA. As noted, currently, there are no registered crypto ATM operators in the U.K.
It is important to note that the same requirements do not apply to crypto purchases made via more traditional methods, such as a centralized exchange.
Illicit Use of Crypto ATMs
The privacy afforded by crypto is attractive to criminals, particularly those who seek to launder illicit money and obfuscate any audit trail. Globally, authorities in multiple jurisdictions have moved to shut the machines down because they provide an ideal conduit for laundering money, with limited traceability on where funds originate and where they are sent.
Although this regulatory approach is becoming more common, it should not be automatically assumed that everyone who uses a crypto ATM is party to a criminal transaction.
Impediment to Thriving U.K. Crypto Industry
It can be argued that the FCA should narrow its focus toward enhanced monitoring and regulatory compliance. It may also be said that its objective should be to ensure that crypto ATMs and, therefore, those operating and profiting from them, require customer identification and appropriate know-your-customer steps before customers can transact.
Another means of regulating the marketplace would be to create a customized set of KYC rules for crypto ATMs that would potentially mitigate their use for criminal activity.
Technology might play a part in making this work. For example, fingerprint or facial recognition technology could be used to validate an individual’s identity and enhance KYC checks. This could be undertaken in conjunction with the scanning of a passport, where a live camera scans an individual’s face and matches it to the passport photo, while background checks are simultaneously undertaken on the passport itself.
Regulatory authorities in some other jurisdictions take a different view. Crypto ATMs can be found in multiple countries, with more than 1,000 located in various European Union member states, for example.
Worldwide, users seeking to access crypto and bypass the traditional banking system can access more than 37,500 crypto ATMs, according to data provider AltIndex.[4]
Therefore, those who do wish to use them have perfectly legal options in diverse global locations.
The FCA’s excessively antagonistic language may deter crypto users who do value regulatory compliance from considering the U.K. as a potential jurisdiction to be located. Manifestly, choosing the U.K. in the current climate would be an unlikely option for any crypto ATM operator.
As current regulations stand, crypto companies wanting to operate in the U.K. must first register with the FCA, which assesses them under anti-money laundering and other regulations.
In its latest annual report published in September, [5] the FCA noted that it had rejected 87% of the applications received from crypto-asset companies seeking clearance for their money laundering defenses.
The regulator also issued 450 consumer alerts against crypto-asset promoters — only three months after rules against misleading marketing were tightened.
The charges brought against Osunkoya highlight the importance of compliance in the crypto sector, serving as a stark reminder for crypto asset businesses about the risks of noncompliance.
Conclusion
Given that the FCA is monitoring the crypto ATM sector through active policing, enforcement and prosecution, organizations in the U.K. need to take a similarly proactive approach to KYC and related protocols through constant monitoring and adaption. This means complying with the spirit of what the FCA wants, rather than just the bare minimum.
Welcome to the In Early podcast, where host Matt Green dives into the world of digital assets and technology. In this episode, Matt speaks to Professor Sarah Green who has just finished a four year tenure as Law Commissioner for Common and Commercial Law. During that time Sarah’s law reform work included the Electronic Trade Documents Act 2023, Advice to the Government on Smart Contracts, updating the Arbitration Act 1996, scoping reforms to the law of Intermediated Securities and drafting guidance and a bill to ensure that English Law is well suited to accommodate Digital Assets.
Key takeaways from the podcast
Matt questions:
The Law Commissions recommendation that issues should be dealt with in Courts, given important academic issues are then limited to whether a client has enough resources to litigate through to answer, when there is an opportunity to answer them now
What rivalrous means, given matt kimbers Pokémon references
Whether data as be property
As well as more about D2 Legal Technology and the problem it looks to solveThis episode features Professor Sarah Green who has just finished a four year tenure as Law Commissioner for Common and Commercial Law.
Matt and Sarah speak about the journey of crypto assets becoming “property” at common law and why that was important, to where we are now, with legislation looking to define “things” as property, using a negative definition proposed by the Judiciary:
UK Jurisdiction Taskforce’s Legal Statement on Cryptoassets and Smart Contracts of 18 November 2019 which argued there should be no bar to cryptoassets being property at law, and for smart contracts to be legally binding: https://tinyurl.com/kmthub8z
AA v Persons Unknown: Re Bitcoin, which relied on that paper, and in which the Judge confirmed “I consider that a cryptoasset such as Bitcoin is property” https://www.bailii.org/ew/cases/EWHC/…
Law Commisison’s Digital Assets Call to Evidence April 2021, including some of Sarah’s favourite and notable feedback from the industry: Call for evidence: https://tinyurl.com/ft99r8ej Responses: Digital assets call for evidence responses
Next was the Digital Assets Consultation Paper of 28 July 2022, which proposed a third category of property called a Data Object, with Sarah considering the inclusion and status of data, even considering absurd Matrix-esque environments where everything is data: https://tinyurl.com/5n6u8zs9
The Law Commission’s Digital Assets Final Report of 28 June 2023, which removed the need for this new property definition to include “composed of data” and changes the definition to recognise property where “merely by reason of the fact it is neither a thing in action nor a thing in possession”: https://tinyurl.com/379up4ec
finally the Supplemental Report and Draft Bill (now the Propert (Digital Assets etc.) Bill) continues that a “thing” can be property, with the words “digital” and “electronic” as references: https://cloud-platform-e218f50a481296…
