Blockchain
The next UK government must act quickly to regulate (and keep) cryptocurrency firms
The UK election is on July 4, and polls suggest a new Labour government is inevitable. The crypto ecosystem in the UK has grown steadily under various, almost exclusively Conservative, governments since Bitcoin’s inception 15 years ago. So what does this change in leadership mean for the future of cryptocurrency?
Laura Navaratnam is the UK Policy Lead for the Crypto Council for Innovation. The opinions expressed in this column are those of the author and do not necessarily reflect those of CoinDesk Inc. or its owners and affiliates.
Before the election was announced, the industry had become accustomed to a government that was, in recent times, generally understanding and supportive of cryptocurrencies. In 2022, John Glen, the Economic Secretary to the Treasury (also known as the City Minister) pledged to make the UK a global hub for cryptocurrency technologies. This vow was repeated by his successors Andrew Griffith in 2023 and, more recently, Bim Afolami, who solicited Regulators need to keep a close watch on the cryptocurrency industry to ensure its success is not “undermined.” Broad powers were introduced in the Financial Services and Markets Bill, bringing stablecoins into the regulatory ambit of the Financial Conduct Authority, and clarity was promised on the treatment of staking. Now, with Labor polling at around 41%, we are days away from a sea change in 14 years of Tory leadership.
Labor has published its manifest two weeks ago. There was no mention of digital assets or anything like that. Even more surprising is that there was no full reference to financial services. We can only assume that Labour has not developed a position on crypto and blockchain technologies, but that will have to change quickly. Fortunately, there are some areas where Labour could quickly make a positive impact without having to commit huge amounts of time or resources.
Finalize Stablecoin Regulation. In order for regulators to consult on the rules, the next government will need to prepare the final legislative instrument to bring stablecoins within the regulatory perimeter. Based on previous promises that this would happen by the summer, legislation is likely ready and waiting. The next Labor government will need to rely on its Treasury policy experts and pass this legislation.
Regulatory clarification on staking. Again, this is an area where the industry has been promised clarity. Since staking is a fundamental activity that ensures the continued security and evolution of blockchain networks, it is crucial to understand and act correctly where and how it could be captured by financial services regulation.
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Financial Promotions Guide. The so-called FinProm Rules have been effective for six months, and territorial breadth combined with rigorous specificity is creating chains of regulation across the industry, as companies with questionable relevance fall under its purview. It is time to revisit the original policy intent and provide the industry with clarity on what is and is not in scope.
The digital asset ecosystem is not going away. Regulators globally have realized that to maintain a competitive market, they must embrace Web3 and crypto assets and introduce robust but proportionate regulatory regimes to manage the new reality.
Without swift and decisive action from the new government, the UK will go from being a global leader in innovation to quickly trailing jurisdictions such as the European Union and South East Asia, where regulatory regimes are in place. Such concessions are difficult, perhaps impossible, to regain.