A report published by the Crypto and Digital Assets All Party Parliamentary Group has called for urgent regulation of the cryptocurrency industry in the UK.
Last August the APPG announced an inquiry into the crypto and digital assets sector following the government’s pledge to make the UK the global hub for cryptocurrency investment.
Today it publishes its 52-page report – the first to be compiled jointly involving Members of Parliament and the House of Lords – which makes 53 recommendations.
The report found that cryptocurrency and digital assets present a number of opportunities but, without regulation, also present considerable risks particularly in terms of consumer protection, economic crime and financial stability.
The report states that other countries 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, MPs said.
“We have concerns as to whether authorities and regulators have sufficient resources and the appropriate knowledge and skills internally to deliver on their new cryptocurrency and digital asset responsibilities,” warned the report. “The FCA registration regime in particular is in need of significantly greater resource to ensure firms’ applications can be reviewed within a reasonable period of time.
“All UK regulators related to the sector should have dedicated cryptocurrency and digital assets units with proper resource and sector understanding to deliver on their responsibilities.”
Scottish National Party MP Dr Lisa Cameron, chair of the committee, said: “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.”
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Realising Government’s Vision for the UK to Become a Global Hub for Cryptocurrency & Fintech Innovation sets out the primary issues and considerations for policymakers when developing future regulation for the cryptocurrency and digital asset industry in the UK.
Recommendations to the government cover 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, including the mooted ‘Digital Pound’; and risks faced in terms of consumer protection and economic crime.
As well as recommending that the government explore how it can support regional growth to support its ‘Levelling Up’ agenda, leveraging the strength of its existing regional FinTech hubs across the UK, the report encouraged further research into the potential for improved access to financial services for the 1.2 million people in the UK who do not have access to mainstream financial services.
The inquiry heard that cryptocurrency and digital assets do not at present pose a systemic risk to the financial system; however the government should continue to monitor the growth of the sector and take risk management action should the sector reach a scale where they could impact wider financial stability. It also said the UK must not risk falling behind other countries in the race to regulate the industry.
The inquiry heard that much of the progress thus far has focused on specific issues without being part of a wider strategy. It was felt that there still needs to be a clearly defined overarching strategy and an action plan to deliver on the government’s vision for the UK. It also heard that at present the process for cryptocurrency and digital asset businesses to enter the UK is too burdensome and lengthy, resulting in many businesses ultimately choosing to invest elsewhere.
The inquiry heard that a digital pound – currently under consultation – could play a key role in safeguarding the UK’s payment autonomy and that the government should carefully consider the potential impact of other countries’ CBDCs in its strategy. It added that the government and Bank of England should pilot, experiment and test any future digital pound with various design options, using different technologies.
The government should also consider issuing updated guidance on the taxation of cryptocurrency and digital assets in the UK, suggested the report, and also consider a comprehensive tax framework which ensures that the UK remains internationally competitive, provides clarity for investors and ensures tax revenue.
Kate Rhodes, senior counsel at Paysafe, said bringing the crypto sector into the mainstream through a financial regulatory framework that is “fit for purpose” is the best way to ensure consumers are well-informed and risks are managed.
“The APPG has made some important recommendations in this report, most notably that cryptocurrency and digital assets are best regulated within existing and new financial services regulations, which has a track record in mitigating risks to consumers and investors,” she said.
“The report is also right to highlight how we should consider the environmental impact of cryptocurrency and digital assets, as well as how the government and the sector should look into the potential for greater digital financial inclusion.”