In April 2022, the UK government set out its vision to make the UK the global hub for cryptocurrency investment, committing to create the right conditions for cryptocurrency and digital asset businesses to set up and to scale up in the UK.
The Crypto and Digital Assets All Party Parliamentary Group launched an initial Inquiry in August 2022 to learn more about the opportunities presented for growth alongside the current challenges faced. The Inquiry has focused upon a number of key areas including the UK’s approach to regulation of cryptocurrency; the role and current approach of UK regulators, a potential Digital Pound and risks faced regarding consumer protection and economic crime.
It has identified a number of opportunities and potential challenges that are set out in a new report. The recommendations are intended to establish a foundation for further discussion regarding the future of cryptocurrency and digital asset regulation in the UK to help inform policymakers.
The key conclusions and recommendations are as follows:
Cryptocurrency and digital assets have the potential to significantly transform the established financial services system and the way money is dealt with. The rapid growth of cryptocurrency and digital assets in recent years and the increased interest and adoption amongst consumers and investors, suggests that the sector needs to be regulated to protect consumers and to promote investment and economic growth.
The cryptocurrency and digital assets industry prevents a number of potential opportunities in the UK including efficiencies and innovation in financial services and payments, economic growth, contribution to careers of the future, research and collaboration opportunities and greater financial inclusion for those who are currently marginalised. The APPG says that the UK is well placed to harness these opportunities but it will require cross governmental strategic planning to realise them.
The report also highlights that growth of the cryptocurrency and digital asset sector, without comprehensive regulation, also presents considerable risks particularly in terms of consumer protection, economic crime, and financial stability. Regulation of cryptocurrency and digital assets within financial services is vital to addressing consumer risks whilst harnessing the sector’s potential and contribution towards economic growth.
Some countries around the world have moved quickly to develop clear regulatory frameworks and to provide necessary clarity attracting companies to their jurisdictions. The report says that the UK must move within a finite window of opportunity within the next 12-18 months with the aim of ensuring early leadership within this sector. The APPG also welcomes the fact that a digital pound is being explored. It points out that the public and consumers are increasingly embracing more digital means of payments and so it is good that the government and regulators are responding to the trend and exploring the need for further regulation. Any decision to introduce a digital pound in the future will be a profound decision and will require significant trust amongst the public and consumers. The government must ensure that there is a sufficient and appropriate education and awareness amongst the wider public which will be a determining factor in the success of any future digital pound.
The report says that UK regulators will play a key role in delivering the government’s vision for cryptocurrency and digital assets. The APPG has significant concerns about whether regulators currently have the resources, capacity and technical expertise required and says that further support and monitoring must be provided.
Given the broad nature of cryptocurrency and digital asset regulation, the government will need to ensure that it has joined up and coordinated approach across all departments and agencies that will be affected by the growth of cryptocurrency, digital assets and blockchain technologies. The APPG calls for a “Crypto Tsar” who can help coordinate across departments to ensure a consistent approach.
The APPG supports HM Treasury’s that cryptocurrency and digital assets are best regulated, to the extent that is possible and appropriate, within existing and new financial services regulations, which has a track record in mitigating risks to consumers and investors. The APPG also agrees with the recent recommendations by the International Organization of Securities Commissions that regulators “should seek to achieve regulatory outcomes for investor protection and market integrity that are the same as, or consistent with, those that are required in traditional financial markets.
