The All-Party Parliamentary Group (APPG) for Crypto and Digital Assets, has published a comprehensive report on the need for urgent regulation of the cryptocurrency and digital asset industry. This follows the cross-party group of parliamentarians’ official inquiry into the sector.
The report – ‘Realising Government’s Vision for the UK To Become a Global Hub for Cryptocurrency & Fintech Innovation’ – is the first of its kind compiled jointly involving Members of Parliament and the House of Lords on the cryptocurrency and digital assets industry.
APPG makes 53 recommendations to government
The report makes a total of 53 recommendations to government on a number of key areas. These include the UK’s approach to regulation of cryptocurrency and the role and current approach of UK regulators. Examples include the Bank of England, the FCA and the ASA. In addition, it covers the potential offered by Central Bank Digital Currencies, such as digital pound. Recommendations also cover the 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 digital assets and explores the need for UK regulation. It launched its Inquiry in August 2022. This followed the UK government’s announcement of its vision to make the UK the global hub for cryptocurrency investment.
As part of its inquiry the APPG sought views from across the sector. This included 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. Evidence was taken on the considerations to be made in order for the government to achieve its vision.
APPG cryptocurrency regulation: key recommendations
Increased interest and adoption amongst consumers and investors suggest that cryptocurrency is here to stay. But 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. The APPG argues they have 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.
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.
Government should consider appointing a crypto-Tsar
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.
Chair of the APPG, Lisa Cameron MP said: “This is the first report of its kind. We are keen that it contributes to evidence-based policy development across the sector. The timing of this report is vital to protect consumers whilst ensuring UK leadership in this sector can be realised.”
Cryptocurrency regulation: framework must be fit for purpose – Paysafe
Kate Rhodes, Senior Counsel at Paysafe, told RBI: “Paysafe believes that 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 – as well as take advantage of the innovation and benefits the sector brings. Paysafe is broadly supportive of the UK government’s approach to achieve this.
“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. They have a track record in mitigating risks to consumers and investors. The report is also right to highlight how we should consider the environmental impact of cryptocurrency and digital assets. In addition, the government and the sector should look into the potential for greater digital financial inclusion.
“Paysafe would encourage the industry to maintain a dialogue with policymakers to help develop an innovative financial regulatory framework. The UK can be a destination for digital asset and blockchain companies to thrive, providing jobs and fostering financial innovation.”
CryptoUK welcomes APPG inaugural report
Ian Taylor, board advisor at CryptoUK, the trade body for the UK crypto industry, said: “We are extremely pleased to see that the inaugural report from the 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. This ensures 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.
“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. This will enable blockchain businesses to operate effectively, foster innovation and protect consumers.
“We acknowledge the concerns about the readiness of the current regulatory governance regime. We fully support the work needed to ensure this is robust and fit-for-purpose. This will enable the industry to realise its full potential whilst operating effectively and safely.
Finding the right balance: R3
Alisa DiCaprio, chief economist, R3, told RBI: “Events of the past year have shown that crypto is a high-risk asset. It would benefit from targeted smart regulation and greater consumer safeguards. However, it is vital that the UK government uses policy as a means of bolstering innovation rather than hindering it. Finding this right balance will require close collaboration between the public and private sector, across all industry and market participants.”
“Lack of regulation is undoubtedly one of the biggest challenges facing the industry. This creates uncertainty and a reluctance to engage with the technology. Smart regulation, tailored to the unique attributes of the crypto market, can serve as the platform for more stringent user protections and the required guidelines on how the underlying distributed ledger and blockchain technology is applied.”
Much needed prompt for crypto to reach full potential: Coincover
Katharine Wooller, Business Unit Director at Coincover told RBI: “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. It 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.
“Numerous crypto firms 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 Crypto UK, that are doing a fantastic job in lobbying government and policy makers to make this a reality in the near future.”