i appreciate your reply repentance, so lets address the issues in more detailed. I tried to dumb my analogies down as the majority of posters seemed to be of basic legal understanding and I wanted to put it in terms they would understand.
Ok.
You seem to be American by your use of lawyers which in England we call them solicitors or financial advisers. So lets get to the knitty gritty details.
I wanted to implement phase 2 (withdrawal) at the same time as phase 1 (buying bitcoin) but that takes time due to the facts that the FSA would THEN class me as providing a regulated activity which I am currently dealing with the phase 2 stuff. From current legal stand point in English financial law bitcoin is not recognized as 'money' but a product or service where by purchasing them is not regulated and does not come under FSA regulations. I know we personally consider it as money but it has not yet been confirmed as money in England.
Many analogies about facebook credits I have read about, poker chips oranges and pears. But my advisor basically says we are purchasing a database of data.
if i was to take UK £ in and have a database saying user Paul has £xx and he traded in pounds on my server this would be regulated activity as having the data in Pound form is e-money. But because EG Paul is buying bitcoins, he is buying a product in todays legal terms.
Back to the phase 2 Side of the matter, where things get trickier. In UK financial law/regulations the bitcoin itself is not the problem when it comes to FSA regulations. It is what I do with the UK Pound between the person paying in and the person cashing out.
American term KYC (know your customer) is indeed used by banks who have financial obligations under laws and regulations to monitor that stuff. But in England its not called KYC officially but instead its called Customer Due Diligence and as part of my alpha testing and consulting an advisor I have found out that using a prepaid debit card for deposits removes some of those hurdles and sets me up ready for phase 2 once I have all my eggs in one basket. So using your American term KYC is not used with prepaid debit cards.
Also bitinstant is as you said registered as a retailer. Not a financial institution/organisation. Which in England it does not require special licences for the UK equivalent under the sales of goods and services mumbo jumbo.
I do not mean my comments to sound negative or aggressive towards you repentance, as I truly welcome your line of questioning, far more then the peter griffin troll. Feel free to ask more if I missed anything. And sorry if I did, its just writing all the stuff and checking notes may make me miss one of the many questions asked.
I personally do not want to come across as a uptight know it all talking like a Harvard graduate using big long words. I am down to earth and try to speak to people in plain English. So forgive my lack of legal terminology