We need a clear regulatory roadmap for success to become a leader in Crypto

6th December 2021 | Blogs


By Adam Jackson, Director of Policy at Innovate Finance 

The growth of crypto in the past few years has been exponential, to say the least. Cryptocurrency payment tokens like Bitcoin have grown to around a trillion US dollars, driven in part by the impact of Covid on personal finances, geopolitical instability and a desire to keep money out of the reach of authoritarian regimes. Demand has been fuelled by gamification and social media influencers. 

Equally fast growing, and potentially more significant long-term, has been the growth of the wider crypto family of financial assets and services: asset and security tokens (digitalising ownership records), utility tokens for services, use of blockchain-based decentralised finance for more established services, Central Bank Digital Currencies, and stable coins (digital currencies tied to the value of another asset). These will revolutionize payments, deposits and savings, FX and lending, with lower cost and faster transactions.  

The deputy governor of the Bank of England has recently signalled the need to look at crypto currencies in terms of systemic risk to financial stability. 

The former Chancellor, Philip Hammond, has highlighted that UK regulators have not moved as fast as other countries – including Germany, Switzerland, and Singapore – when it comes to crypto regulation. The EU is developing its own Markets in Crypto-Assets (MiCA) regulation. Earlier this year, the Kalifa Review of UK FinTech called for the introduction of a UK crypto regime to strengthen Britain's global position. 

The UK Government launched a consultation on its regulatory approach to crypto assets and stablecoins in January 2020 and we are expecting Treasury Ministers to outline next steps shortly. This should provide a great opportunity to outline a clear regulatory roadmap for crypto and boost the UK’s prospects as the world-leader in this emerging space.

Responsible international FinTech businesses tell me they want to come under a regulatory system that builds market confidence and trust for B2B and B2C providers, for consumers and those investing in these new business models. 

A joined up approach is needed: clear direction from HM Treasury and a cohesive approach by the Bank of England, PRA, FCA and HMRC. We need a set of rules for crypto assets and exchanges, to protect and inform consumers and enable responsible providers to be more easily identified. Before the market grows much more, prudential regulators need to give a clear signal on their approach to  systemic stability risks. 

The Bank of England is proactively looking at the issues raised by digital money and exploring future systems - in its work on stablecoins and on a Central Bank Digital Currency. If implemented and regulated appropriately, these could bring huge benefits by stimulating further innovation in financial transactions and services. 

Building a new regulatory approach – or even tweaking  existing rules – is no small task. Regulators need to act swiftly to keep up with innovation. The Government set up a crypto task force back in 2018 and only at the beginning of 2021 published a consultation on crypto assets. At this rate, it’s unlikely we’ll see regulation before 2022 at the earliest, whilst the market continues to grow. 

The pandemic has shown that regulators can act fast, developing new rules in days. Brexit has given  UK regulators greater agility to do so. We now need to start using this flexibility and crypto should be a priority. 

The FinTech ecosystem is looking for a firm commitment from the UK Government and regulators to developing a proportionate, competitive regulatory system; a clear roadmap and timetable for doing so; and ensuring the regulators have the resources and capability to create and implement this.

The prize for the UK is consumer confidence and safety, offering a dynamic base for global businesses to develop responsible crypto services and products.

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