The All Party Parliamentary Group (APPG) for Crypto and Digital Assets Group, a cross-party group of MPs and Lords in the UK Parliament chaired by Dr Lisa Cameron MP, has published a comprehensive report on the need for urgent regulation of the cryptocurrency and digital asset industry in the UK following its official inquiry into the sector.
The 52 page report is titled Realising Government’s Vision for the UK To Become a Global Hub for Cryptocurrency & Fintech Innovation. It is the first report of its kind compiled jointly involving Members of Parliament and the House of Lords on the cryptocurrency and digital assets industry.
The report makes a total of 53 recommendations to the government on a number of key areas. These include:
- The UK’s approach to regulation of cryptocurrency
- The role and current approach of UK regulators including the Bank of England, the FCA and the ASA
- The potential offered by central bank digital currencies (CBDCs) – ‘a Digital Pound’
- Risks faced in terms of consumer protection and economic crime
The APPG was formed in response to growing interest and scrutiny of the sector in Parliament. It exists to help policymakers better understand the ever evolving world of cryptocurrency and digital assets and explore the urgent need for UK regulation. In August 2022, the APPG launched its inquiry following the UK Government’s announcement of its landmark vision to make the UK the global hub for cryptocurrency investment.
As part of its inquiry, the APPG sought views from across the sector including from operators, regulators, industry experts and the general public on the need for regulation of the sector. The group also held a series of public evidence sessions in Parliament. There, experts explained the considerations that need to be made in order for the government to achieve its vision for the sector.
The 53 recommendations
Of the 53 recommendations for government made in the report, the main findings include:
- The rapid growth of cryptocurrency and digital assets in recent years and the increased interest and adoption amongst consumers and investors suggest that cryptocurrency is here to stay. It needs to be regulated to protect consumers.
- The cryptocurrency and digital assets industry presents a number of potential opportunities. The UK is well placed to harness these opportunities but it will require cross-governmental strategic planning to realise them.
- The 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.
- Cryptocurrency and digital assets are best regulated within existing and new financial services regulations. This has a track record in mitigating risks to consumers and investors.
- Other countries around the world are moving quickly to develop clear regulatory frameworks for cryptocurrency and digital assets. The UK must move within a finite window of opportunity within the next 12-18 months to ensure early leadership within this sector.
- Significant concerns remain regarding whether regulators currently have the resources, capacity and technical expertise required to deliver on their responsibilities. All UK regulators related to the sector should have dedicated and properly resourced cryptocurrency and digital assets units.
- The government requires a coordinated approach across all Departments towards regulation of cryptocurrency, digital assets and blockchain technologies. Government should consider the appointment of a ‘Crypto Tsar’ who can help coordinate across departments to ensure a consistent approach.
Helping everyone better understand the crypto world
Announcing the launch of the report, chair of the Crypto and Digital Assets All Party Parliamentary Group (APPG), Dr Lisa Cameron MP, said: “As chair of the Crypto and Digital Assets All Party Parliamentary Group in Parliament, I am delighted to present the group’s inaugural report considering the potential opportunities and challenges of realising the government’s vision for the UK to become a global hub for Cryptocurrency and Digital Assets.
“The Crypto and Digital Assets All Party Parliamentary Group was formed in response to growing interest and scrutiny of the sector in Parliament and exists to help policymakers better understand the ever-evolving world of cryptocurrency and digital assets and explore the urgent need for UK regulation.
“I am grateful to everyone who has contributed to our initial APPG Inquiry: to industry, the world of regulation and the banking sector; they have shared their views and expertise which has helped to inform this report and have informed our recommendations to Government.
“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.”
The government is working alongside crypto – not against it
To understand how impactful this report is, we reached out to the crypto industry to see its response.
Commenting on the inaugural report, Ian Taylor, board advisor at CryptoUK, the trade body for the UK crypto industry, says: “We are extremely pleased to see that the inaugural report from the Crypto & Digital Assets APPG issued today. This is balanced, considered and presents a holistic view of the UK’s crypto and digital assets sector.
“We have continued to strongly advocate for the need to be working alongside the government in ensuring that the industry has the opportunity to grow within a regulatory framework that allows the development of new technology and does not restrict or stifle innovation. We believe the recommendations from this report will allow for more engagement and cross-governmental dialogue to continue to educate and inform policymakers on the critical issues our members face.
A huge opportunity
“The report recognises the significant growth of the sector in the UK and the tremendous opportunity it presents for the country’s economy and reputation as a leader in financial innovation. It also emphasises the need for the government and regulators to define a clear, proportionate and bespoke regulatory framework to enable blockchain businesses to operate effectively, foster innovation and protect consumers.
“We acknowledge the concerns about the readiness of the current regulatory governance regime, and fully support the work needed to ensure this is robust, fit-for-purpose and enables the industry to realise its full potential whilst operating effectively and safely.
“The opportunities and challenges highlighted in the report reflect the aims and positions of CryptoUK as the trade association for the UK’s digital assets sector. We look forward to taking the recommendations and actions forward in partnership with the members of the APPG, representatives of the government and its regulators, and our members and the wider community.”
Grey areas are now seeing colour
Igor Mandrigin is the CTO and co-founder of Gateway.fm, a decentralised blockchain infrastructure node provider. Mandrigin highlights how the UK Government has responded when comparing itself to both European and Japanese crypto regulations.
“The recently published report by the All Party Parliamentary Group (APPG) for Crypto and Digital Assets Group recognises the significant opportunities for significant inward investment that would come with a robust, supportive framework.
“The likes of Gibraltar have experienced the far-reaching benefits of establishing a fit-for-purpose framework that gives projects room to innovate, so the case for getting the regulatory house in order is strong. It would also help establish a culture of home-grown UK innovation. This is important as the UK also knows that it’s behind the curve because of MiCA as well as new Japanese regulations.
“The report also references the benefits of stablecoins, as well as the intrinsic link between digital assets and financial services and payments innovation. Additionally, the report underlines the importance of the UK staying on the cutting edge of emerging technology in the space.
“A core strand of the report revolves around consumer protection, framed as a critical success factor for the UK’s crypto hub ambitions. While somewhat vague in terms of tangible actions, strong consumer protection measures would go a long way towards encouraging new swathes of ecosystem participants, who until now, may have exercised caution when it comes to exploring the crypto space.”
A different scene across the pond
While the European crypto climate has accepted regulations and is learning to deal with them, the same cannot be said for the US’ crypto world. Regulations continue to be a cause for tension in North America. Aaron Rafferty, CEO of StandardDAO, the decentralised treasury, and co-founder of BattlePACs, a subsidiary of StandardDAO highlights how the report has helped calm the regulatory tensions that was brewing in the UK, comparing the situation to that of the US: “The UK has been much more favourable to the regulatory climate around crypto than the US.
“In the wake of securities enforcements in the US just today and over the last year, we have seen a different tune with the UK policy. Rather than enforcement, UK officials have prioritised the benefits of open financial technology that blockchain provides, often discussing its utility and value as a commodity rather than simply an investment instrument. Finally, these regulations are long overdue and a favourable stance by the UK could be the push the space needs to move past the cloud hanging over it over the past year and a half.”
Strengthen the UK’s shout to be a global crypto hub
Crypto remains a booming market and many countries are trying to establish themselves as the technology’s headquarters – the next Silicon Valley. CEO and founder of FLUID, the liquidity aggregator, Ahmed Ismail, explains the importance of establishing regulations to create a global hub: “The inquiry into the crypto sector is significant in the grand scheme of things for several reasons.
“Firstly, the report acknowledges that the crypto industry is here to stay and recognises its potential to transform established financial services systems significantly. This indicates a forward-thinking approach by the UK government and a recognition of the importance of embracing new technologies and innovations.
“If the report’s recommendations are acted upon, the crypto market in the UK could undergo substantial changes. The country has expressed its intention to become a global crypto-asset hub, aiming to attract crypto businesses and investments by providing a favourable regulatory environment.
“By doing so, the UK aims to compete with the US financial markets and take advantage of regulatory arbitrage. The report emphasises the need for the UK to establish itself as a global regulatory leader for crypto within a 12 to 18-month window, as other countries like Dubai, Singapore, and Hong Kong are also vying for this position.
“Overall, the report’s constructive tone and recognition of the crypto industry’s importance indicate a positive approach by the UK government. Furthermore, implementing the recommendations effectively could lead to significant changes in the UK’s crypto market and strengthen its position as a global hub for crypto assets.”
This is only the beginning
Katharine Wooller, business unit director at Coincover, the crypto insurance company, expresses her happiness at the UK’s response by saying: “This report shows real progress. As an industry ‘old timer’, it brings me much joy to see crypto being taken seriously as an economic and social force. After all, it’s clear that digital assets are a trend and investment class that are here to stay.
“The 53 recommendations are far reaching. While the UK government talks enthusiastically about fintech and crypto broadly, the reality of those firms seeking regulation has been marred by delays and mutual mistrust. These recommendations provide a much-needed prompt to allow the crypto ecosystem to reach its full potential and adds to the impetus for the UK not to be “left behind” on key technologies such as CBDC.
“Although I am delighted to see the report, the proof will be in the delivery. Numerous crypto firms based overseas are eyeing the UK as a potential home. It is high time the UK, as the global home of financial services, claims its rightful title as the home of digital assets too.
“There are numerous crypto firms that have set a high bar for their own conduct in the absence of regulatory clarity, but we need to implement robust standards and principals for best conduct. Luckily, there are a number of trade bodies – for example, Innovate Finance and CryptoUK – that are doing a fantastic job in lobbying government and policymakers to make this a reality in the near future.”