The UK first announced plans to become a global crypto hub in April last year — but a new report by an independent, cross-party group within parliament has warned that time is running out if the UK wants to emerge as an international leader.
On Monday, the crypto and digital assets all-party parliamentary group (APPG) published 53 recommendations for how the UK government should act. Taking views from crypto regulators, experts, and parliament sessions, the group found that the UK “still remains in the very early stages of regulation.”
While progress has been made since former chancellor and current prime minister Rishi Sunak first announced plans to become a global crypto leader, “much of the progress thus far has focused on specific issues without being part of a wider strategy.” The government needs to define a clear, overarching action plan to deliver on its vision, the APPG urged.
The report comes at a crucial time for the UK. The UAE and Hong Kong have recently outlined clear crypto and digital asset regulations that have garnered the attention of major players in the industry. And as countries race to experiment with their own CBDCs, it’s time that the UK decides if it wants to become a first-mover in issuing a digital pound, or wait to learn from other nations.
“Other jurisdictions are making significant headway in delivering legal and regulatory certainty,” the APPG’s inquiry concluded. “There is a real risk of the UK being left behind by more advanced […] regulated markets overseas.”
“The Government must move within a finite window of opportunity within the next 12-18 months to ensure early leadership within this sector,” it said.
Report urges UK gov’t to appoint a ‘Crypto Tsar’
If swift action is taken, the APPG believes that the UK can certainly become a global crypto and digital asset hub. As a leader in fintech, the government is in a strong position to build on its existing strengths.
However, when it comes to regulation, the government needs to determine whether current frameworks are appropriate for digital assets — it’s possible that “new, domain specific regulation” is required, along with a “comprehensive tax framework” that will provide clarity and tax revenue.
The APPG pointed to a particularly large hurdle the government must overcome: the struggles crypto firms face in securing access to UK banking. “The Government should take urgent steps to ensure there are clear pathways for legitimate and responsible companies to be able to access fundamental services required to operate regulated businesses,” the report said. The government should “help facilitate a dialogue between the banking and cryptocurrency […] industry on this issue.”
In order to make robust regulation happen, a “whole of government approach” is needed. The APPG suggested that the government appoint a ‘Crypto Tsar’ who has a strong overview of all departments in order to ensure consistency, the development of specialist knowledge and expertise, and strong regulation.
UK finance watchdogs need more crypto education
At present, the process for crypto and digital asset firms to jump through regulatory hoops is “too burdensome and lengthy” — resulting in many companies deciding to find a home base in friendlier jurisdictions overseas.
“Government must ensure that regulators are properly equipped to be able to deliver the Government’s streamlined vision,” the APPG urged.
Specifically, the independent body found that it has concerns about the UK Financial Conduct Authority (FCA)’s resources, knowledge, and skills. It suggested that all UK regulators have “dedicated cryptocurrency and digital asset units” to deliver on their responsibilities.
However, the onus is not just on regulators to become better educated. Members of government must also learn about the latest technologies in order to make informed decisions, and law enforcement must “adapt to the latest techniques used by criminals.”
The APPG also noted that digital finance education remains low among the public — leaving Brits more vulnerable to scams. “Improving consumer awareness […] should be a top priority,” the report said. It suggested the Government look into school curriculum reforms for improved digital financial education for future generations.
Recommendations for issuing a digital pound
According to the report, the Bank of England and the government’s joint efforts to explore a UK CBDC are welcomed. However, the APPG warns that the benefits should be carefully weighed against the risks, particularly to private sector innovation, and that rigorous testing with different technologies should be undertaken.
At the same time, there are advantages to holding off on a digital pound — and letting other countries make mistakes that the UK can learn from.
“At a geopolitical level, there could be first-mover advantages of being among the first countries to have an internationally trusted and widely used CBDC,” the APPG acknowledged. “However, there is also value in a second mover approach allowing the UK to benefit from lessons learned from other countries’ own CBDC initiatives.”
“Government must decide if it wants to lead or follow in relation to CBDCs.”
Coordination is key
All in all, the APPG believes that cryptocurrency and digital assets are here to stay. To get ahead of the curve, a “joined up and coordinated approach” across all sectors of the government must be implemented. Robust reforms in regulation and education are needed, and processes need to be more efficient to attract cryptocurrency companies to the country.
If done right, the UK could see a boom in financial services, economic growth, career opportunities, and greater financial inclusion. But other countries are moving fast — the UK must prioritize action if it doesn’t want to get left behind.