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Crypto-assets are here to stay and the UK only has a "finite" amount of time to ensure early leadership, a cross-party group of parliamentarians has said.
Regulation of crypto-assets is needed urgently in the UK, members of parliament (MPs) as well as the Lords have warned in a new inquiry report.
The paper, compiled by the All Party Parliamentary Group (APPG) for Crypto and Digital Assets Group, makes no less than 53 recommendations to the UK government on steps that it can take.
“Given the rapid growth of cryptocurrency and digital assets, the timing of this report is vital to protect consumers whilst ensuring the UK’s leadership in this sector can be realised,” said Dr Lisa Cameron, the MP who chairs the APPG.
According to the paper, the UK is “well positioned” to be a leader in the crypto-asset industry globally.
Time is running out, however, with the paper suggesting that the UK has between 12 and 18 months to establish a regulatory framework that is world leading.
The paper could be said to align with what the UK government wants.
For example, John Glen, the UK’s chief secretary to the Treasury, said in April 2022 the government “wants this country to be a global hub. The very best place in the world to start and scale crypto-companies.”
Similarly, Prime Minister Rishi Sunak said during his tenure as chancellor that he wanted the UK to be a crypto hub.
The APPG endorses this, arguing that the UK is well placed due to international respect for its regulatory model and easy access to financial markets.
The parliamentarians behind this paper include Cameron, a member of the Scottish National Party, as well as Conservative MPs Alexander Stafford and Antony Higginbotham.
Their interventions appear more nuanced compared to a recent Treasury Select Committee report which suggested that consumer crypto trading should be regulated as gambling rather than as a financial service, and that crypto-assets are subject to huge price volatility, have no intrinsic value and no discernible social good.
Crypto’s potential
The APPG argue that crypto-assets could be an alternative method of payment.
“It’s clear from evidence received, that even given its rapid increase in popularity, it’s unlikely that cryptocurrency and digital assets will ever entirely replace other forms of finance,” the paper acknowledges.
Rather, parliamentarians have concluded that it is more likely to complement existing payment systems and be an alternative to other mainstream forms of payment, within particular use case scenarios for those who choose to use it.
For example, parliamentarians found in their research that these types of assets are allowing people to transfer value quickly at lower cost and in some cases making it much easier, faster, and cheaper for families to send money to loved ones overseas.
Financial inclusion is another area touted as a benefit by the report.
“We heard that many consumers in minority or low socio-economic groups have historically had difficulty in accessing financial services and that the opportunities presented by cryptocurrency, digital assets and other means of decentralised finance could potentially remove traditional barriers to entry for some of these groups,” the report says.
However, the paper also says that it is “vitally important” that if the sector is proving attractive to those who are currently on the margins of financial inclusion, that vulnerable consumers should be protected via robust regulation, education and awareness campaigns.
The report talks up the possibilities of crypto-assets driving growth in the UK.
“The UK already has examples of innovative cryptocurrency and digital asset businesses, with many of these businesses operating in regions right across the UK, not just in London, supporting the government’s Levelling Up agenda for all regions,” says the APPG, referencing the UK’s policy of diversifying opportunity away from the capital city.
Authorities lacking joined up approach
The lawmakers state that they “have concerns as to whether authorities and regulators have sufficient resources and the appropriate knowledge and skills internally to deliver on its new cryptocurrency and digital asset responsibilities”.
Here, the report suggests that UK regulators have dedicated crypto and digital asset units with proper resource and sector understanding to deliver on their responsibilities.
“The pooling and sharing of qualified resources between regulators and government bodies, as well as increased secondments between public and private sector may help to improve regulators’ understanding of cryptocurrency and digital assets and their ability to move at pace,” the lawmakers suggest.
They also argue that there needs to be better cooperation between government and regulators in general.
“The Inquiry heard that despite statements from Government that the UK is open for cryptocurrency and digital asset businesses, the tone of several public statements from UK regulators including the FCA and the Bank of England have at times been contradictory to that of the government which risks undermining the government’s objective and can deter long term investments,” the paper points out.
For example, comments made by the incoming chair of the UK’s Financial Conduct Authority (FCA), Ashley Alder, have been critical. He said in December 2022 that crypto-asset platforms were “deliberately evasive”, facilitated money laundering at scale and created “massively untoward risk”.
Andrew Bailey, the governor of the Bank of England, has also been less than enthusiastic at times.
In April, he said that crypto is the new “frontline” for criminal scams, and “created an opportunity for the downright criminal”.
Crypto’s crime problem
In a world where FTX and OneCoin have come and gone, it is inevitable that regulators fear the use of crypto for criminal behaviour, and the report does not shy away from this factor.
“The Inquiry heard there have been concerns regarding the potential for these types of assets to be used for the purposes of economic crime, including concerns in relation to fraud and scams, as well as the potential for them to be used as a means to circumvent economic sanctions,” the paper says.
The risks in this area cannot be ignored particularly if the UK wants to position itself as the global home of cryptocurrency investment, the paper says.
“For the government’s ambitions around cryptocurrency and digital assets to come to fruition, there needs to be a clear and robust regulatory regime that is effectively enforced, and which provides consumers and investors with confidence, and which prevents malign actors from abusing the potential of these assets,” the report concludes.
Yet, the APPG also plays down the scale of crypto-related crime, referencing Europol’s findings in 2021 that these types of transaction “represent only a limited share of the criminal economy”.
