Regulation
The next government will have to act quickly to maintain global leadership
The UK elections will be held on 4 July and polls indicate that a new Labor government is inevitable. The crypto ecosystem in the UK has grown steadily under various, almost exclusively conservative, governments since the inception of Bitcoin 15 years ago. So what does this change in leadership mean for the future of cryptocurrencies?
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, in recent times, has generally understood and supported 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 must keep a close watch on the cryptocurrency sector to ensure its success is not “undermined”. Broad powers were introduced in the Financial Services and Markets Bill, bringing stablecoins under the regulatory purview of the Financial Conduct Authority, and clarity was promised on the treatment of staking. Now, with Labour polling at around 41%, we are just days away from a sea change in 14 years of Tory leadership.
The Labor Party has published its manifest two weeks ago. There were no references to digital assets or anything adjacent. Even more surprisingly, there was no reference to financial services at all. We can only assume that the Labor Party has not developed a position on crypto and blockchain technologies, but this will have to change quickly. Fortunately, there are some areas where the Labor Party could quickly make a positive impact without having to commit huge amounts of time or resources.
Finalize regulation on stablecoins. In order for regulators to consult on the rules, the next government must prepare the final legislative instrument to bring stablecoins within the regulatory perimeter. Based on previous promises that this would be done by the summer, legislation is likely ready and waiting. The incoming Labor government must rely on its Treasury policy experts and pass this legislation.
Regulatory Clarity on Staking. Again, this is an area where clarity has been promised to the industry. Since staking is a critical activity that ensures the security and ongoing evolution of blockchain networks, it is critical to understand where and how it might be captured by financial services regulation and to do so correctly.
Financial Promotions Guidelines. The so-called FinProm Rules have been effective for six months and the territorial breadth combined with rigorous specificity is creating regulatory chains across the industry as companies of questionable relevance fall under its purview. It is time to revisit the original policy intent and provide the industry with clarity on what does and does not fall under its purview.
The digital asset ecosystem will not disappear. Regulators globally understand that to maintain a competitive market, they must embrace Web3 and crypto assets and introduce robust yet 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 a fast follower of jurisdictions such as the European Union and South East Asia, where regulatory regimes are in place. Such concessions are difficult, perhaps impossible, to regain.