Summary
- The government is seeking to make the country a global hub for crypto.
- The UK is well placed to be a global leader in fintech, but it will need to get the policy and legislation right.
- Financial services legislation is being extended to cover crypto, although detractors have most recently called for the sector to come under the country’s gambling laws.
The UK is a global financial powerhouse and is looking to retain its international status with legislation that will support the development of the crypto industry. Rishi Sunak, as Chancellor of the Exchequer (finance minister), announced his intention to develop the country into a worldwide crypto hub, but has this sentiment changed with his shift to the role of prime minister?
The Sunak doctrine
In April 2022, then-Chancellor Sunak, outlined his goal to make the UK a global hub for crypto, laying out several policies to help cement this vision. A vocal advocate of crypto, Sunak proposed measures to bring crypto stabilized against stablecoins into the scope of local payments regulations; put in motion a consultation about crypto taxation; ordered the Royal Mint (the UK’s coin maker) to issue a collection of non-fungible tokens (NFTs); and launched a taskforce to investigate whether the Bank of England (central bank) should create a digital currency. He described his plans as being “for a more open, greener, and more technologically advanced financial services sector.”
Problems dog the UK economy
A lot has changed in the intervening months. Sunak has become prime minister and is a leader facing myriad financial and economic problems. These range from a cost-of-living crisis, continued economic fallout from Brexit (the UK’s decision to leave the EU), and his predecessor’s ill-conceived economic policy. Alongside this, crypto has weathered its own storms, and a raft of regulatory challenges highlight the very different, and often competing, attitudes towards the sector.
The UK government’s current position on crypto
As PM, Sunak has yet to include crypto in a public statement, but current chancellor Jeremy Hunt has reiterated that the government wants London and the UK to be a “global hub for innovation in financial services,” albeit caveated with: “But we want to do so in a way that makes sure that we don’t do things that undermine financial stability, and of course we’ll work with regulators to make sure we get that balance right … including all cryptocurrencies.”
More enthusiastic comments have come from Andrew Griffith, economic secretary to the Treasury, who has promised “clear, effective, timely regulation,” designed to “strengthen our position as a world leader in fintech, unlock growth, and boost innovation.”
Crypto policy developments
The UK government is following in the EU’s footsteps, talking up its “second mover advantage” – learning the lessons from the first movers to put in place bespoke, domestic rules. It plans to extend the existing legislation with the Financial Services Markets Bill, a move viewed by some as an attempt to take on Europe, whose crypto markets will soon be governed by the Markets in Crypto Assets (MiCA), in the race to become the pre-eminent, global fintech hub.
In February, the government invited consultation on proposed legislation. The proposed framework outlines requirements on crypto exchanges and trading venues to have detailed reporting and disclosure rules. Draft rules are also envisaged for financial intermediaries and custodians to improve transparency and investor protection. The proposal also claims to be creating a world-first regime for crypto-lending and staking.
Importantly, the plans cover a broad range of crypto activities and attempt to provide clarity to the market. Regulatory clarity is of paramount importance to the crypto industry, which is seeking the development of this to a standard enjoyed by other sectors.
The UK’s approach appears designed to ensure a similarly robust regime for digital assets as traditional finance, along the ‘same risk, same regulatory outcomes’ principle. The UK also highlights its desire to have robust but proportionate rules, to create a regime that capitalizes on the potential benefits crypto offers.
Many UK policymakers and regulators have openly committed, and made moves, to understand, and engage with, digital assets. They want to ensure the responsible growth of the industry and put the UK in the driver’s seat as the digital economy expands.
On the whole, the proposed extensions to the Financial Services Markets Bill have been well received, but crypto stakeholders additionally want to ensure that the UK collaborates with regulators globally.
Unsurprisingly, the proposals have their detractors. This month the country’s Treasury Select Committee published a report in which it called on the government to abandon its plans and place the crypto sector under the remit of the Gambling Commission.
This, however, misunderstands and misrepresents digital assets. It also goes against steps the government has made to create much-needed rules, regulatory clarity, and consumer protection. Industry has been reassured by the government’s response reiterating its intention to regulate crypto under the more comprehensive financial services framework, a position the CCI fully supports.
Outlook
Financial services are integral to the UK’s economic health. GDP growth has been under par for more than a decade, with Brexit, COVID-19, the cost-of-living crisis and economic policy mismanagement dealing additional blows. The Sunak government needs to revitalize the City’s goal of leading the world in digital finance, and the crypto sector – whether detractors like it or not – is a part of this.
An innovative, principles-based, outcome-focused approach to regulating financial services will ensure that the UK leads globally, playing a critical role in the growth of cryptoassets. This approach is widely understood and welcomed in informed government and industry circles.
Unless it acts now, the UK could damage its prospects of being an important player in the world of digital finance. But if the UK is able to move thoughtfully and swiftly, it will be well placed to provide a robust framework that would attract digital assets providers, creating the ingredients for an ecosystem to flourish. This makes the final shape – and global compatibility – of the Financial Services and Markets Bill extremely important.
