LazyCoins Launch Highlights Challenges for UK Bitcoin Businesses

A British startup boasting registration as a Money Services Business has launched a cryptocurrency exchange amid regulatory confusion.

AccessTimeIconFeb 12, 2015 at 4:56 p.m. UTC
Updated Sep 11, 2021 at 11:31 a.m. UTC

A British startup has launched a cryptocurrency exchange and plans a merchant payment processor focused on businesses in London soon.

Notably, the self-funded firm, called LazyCoins, is a registered Money Services Business (MSB) with the country's tax authority. That is something no other British exchange can claim.

"We're trying to be as transparent as we can while waiting for the legislation to catch up," said LazyCoins' managing director Peter Heigho.

Hazy regulatory landscape

The startup's attempts to gain government oversight throws a spotlight on the UK's regulatory regime for digital currencies, which is far from settled.

Industry players await a Treasury report currently being prepared, which could provide clarity for how the financial regulator, banks and other agencies like the tax authority deal with companies that handle cryptocurrencies. No release date has been announced for that publication yet, however.

In the meantime, local bitcoin businesses attempt to interpret a mish-mash of official guidance statements from regulators and unofficial advice from other sources.

The widely held view among digital currency businesses in the UK is that an MSB registration with the tax authority is a regulatory credential that holds little weight. As a result, no bitcoin exchange operating in the UK is registered as a MSB with the tax authority.

Registering as an MSB brings a firm under the UK's anti-money laundering (AML) regulations. Companies operating as bureaus de change and money transmitters are required to register, and their operators must pass a 'fit and proper' persons test.

These rules are designed for government agencies to detect illegal money movements and do not provide, for example, any additional protections to consumers, according to Adam Vaziri of Diacle, who consults on regulatory matters for cryptocurrency companies.

He said:

"AML is not about consumer protection, it's about public and governmental policy."

Still, LazyCoins' registration is more than just marketing, according to Heigho. The firm must register because it's operating a payment processor and deals in fiat currencies, Heigho said.

"If we were purely an exchange platform we probably wouldn't have got the licence. But we are a merchant platform attached to an exchange platform," he explained.

Tax authority stance unchanged

The tax authority, HM Revenue & Customs (HMRC), confirmed that a company dealing in fiat currencies is required to register, but companies dealing only in digital currencies do not. The agency said it continued to "review" market developments and that the rules could change in future.

"We do not currently require bitcoin exchanges to register for supervision under the money laundering regulations ... A bureau de change doing exchange businesses in other currencies as well as bitcoin must register in the normal way for non-bitcoin businesses," a HMRC press officer wrote in response to questions from CoinDesk.

Although MSB registration is no regulatory panacea, a registered company might give customers slightly more confidence in their dealings with it because they know it can be held to account to an outside entity, Diacle's Vaziri said.

He said:

"The exchange is accountable to a certain degree to an external body. Although HMRC is not a regulator per se ... the accountability side may be of some importance."

One thing LazyCoins has already achieved is securing a UK banking relationship, which founder Danial Daychopan said will remain stable because the bank is aware of his firm's dealings in cryptocurrency. He wouldn't say what bank his firm uses.

UK banks have been notoriously strict about doing business with bitcoin companies. Cryptocurrency firms of all stripes, from hedge fund managers to exchanges, have had their bank accounts closed on short notice and with little explanation.

Daychopan has ambitious plans for his firm, aiming to sign up 100 merchants for his payment processor, LazyPay, in the first month of operations. Two merchants have agreed so far: a fine French restaurant and a grocery store, both in London.

The processor is due to launch after it becomes registered as a 'small payment institution' with the financial regulator, the Financial Conduct Authority. That is likely to happen within a month, Daychopan said.

UK firms launch in tough market

LazyPay's merchants will comprise of local London businesses like newsagents and other high street firms supplying daily necessities. The idea is to then route merchant payments to the LazyCoins exchange.

Daychopan said.

"[The way] to make bitcoin go mainstream, which everyone wants, is to make places for people to spend it. So people can buy bread, buy milk with it. London is a good place for it. There are newsagents all over England, but very few that accept bitcoin."

Lazycoins joins two UK startups that have launched in recent weeks to address the nascent digital currency exchange and more competitive merchant processor space.

London-based exchange DSX will be launched with a unique agency arrangement with an e-money issuer licensed by the financial watchdog, the Financial Conduct Authority – also in an attempt to gain regulatory oversight for its business. The same management team runs both the regulated e-money issuer and the exchange.

And a service called ChainPay aims to serve merchants' needs in the UK and Europe with a payment processor model and the promise of personalised service, something that it claims is absent from its well-funded competitors Coinbase and BitPay, both of which have operations in Europe.

The sterling market is small compared to the well-developed euro and US dollar markets. Some $5.2m was traded in the bitcoin-GBP markets in the last 30 days according to Bitcoin Charts. Bitcoin-euro trading volume was about 10 times higher for the same period, at $53.6m. The US dollar market saw more than $800m traded in the same period.

LazyPay hasn't set out to compete with the big firms, Daychopan said, but he believes there is enough of the merchant payments pie to go around.

"We haven't gone out to compete with the big brands. There are only so many Dell Computers and Virgin Galactics out there. But if your local shop around the corner is [going to start accepting] bitcoin, it will only happen if someone goes to educate them," he said.


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