by Lord Holmes of Richmond
In a positive development yesterday in Parliament, crypto assets, currencies and their regulation received a full debate and some positive, encouraging comments from the Minister.
Martin Docherty-Hughes was the member who secured the debate, a long-time supporter of all things blockchain. He made the important starting point, applicable as much to the broader debate as that in Parliament that, when it comes to crypto, discussion has often “produced an awful lot of heat and often little light in this place”.
In his opening remarks, Docherty-Hughes rightly referenced Dr Robert Herian and his 2018 book, ‘Regulating Block Chain’. The book is a good read, clearly setting out the issues at hand, relevant in 2018, just as much so in 2022.
More than that, the book’s publication, along with the report I authored in 2017, ‘Distributed Ledger Technologies for Public Good: leadership, collaboration, innovation’ demonstrate, as Docherty Hughes put it, that blockchain is in no sense “the new kid on the block”.
It is also worth noting at this point how many ex regulators are now involved in blockchain business’, associations and organisations, cause for some confidence in what can be achieved from a standards and regulatory perspective.
Again, a broader question, how does effective, modern regulation interact with the somewhat ‘solutionist’ belief of some block chain proponants ? Truth is, as ever, this can go anyway it may. Solutionist first, it is rarely helpful to suggest that, if only we could find the right tech, all our difficulties would disappear. Similarly, there is no inevitability that blockchain adoption across our economy and society would see us all roll away to hell in a crypto-crashed handcart.
The public good, the reason for my 2017 report, has far more potential than most muse on right now. Take Estonia, worth referencing, where, as Docherty Hughes pointed out: “…they began a roll-out of blockchain in its governmental processes from the Ministry of Finance, and in doing so made all other Ministries reliant on the technology themselves and ensured that one of the central pillars of the social contract—the relationship between the taxpayer and the Government—was radically accountable.”
Echoing Herian: “Blockchain may offer an opportunity to recalibrate the power play between those who would engage in aggressive tax strategies and planning, and those charged with regulating or containing them by, for example, more effectively enforcing tax liabilities ahead of settlement on trust, rather than relying on bringing trustees to account post settlement.”
Imagine that, blockchain’s potential, not inevitability, potential to completely reimagine the social contract between citizen and State. That’s block chain for good.
And in thinking on regulation, the myth in the crypto space that there is none should be thoroughly put to bed. Quite simply, the biggest step that the Government could take to redress the balance is to enforce the law that they already have.
Lisa Cameron rightly pointed out the current difficulties we are all aware of in terms of business registration: “…that there are concerns regarding the slowness to register companies in the UK, and issues with registration linked with the FCA at the current time, which are seeing some companies who want to be based in the UK now moving to Switzerland, France and other jurisdictions”
Responding to the debate, the Economic Secretary to the Treasury made many positive points of note: “During today’s debate, Honourable Members have rightly focused largely on the risks of the new technology, concerns about consumer protection and areas for regulatory clarity, but I suggest that we all share the hope that, through innovation and creating the right conditions, we can achieve opportunities for the crypto industry in the UK to contribute largely to the growth of the wider economy.”
As readers will know, financial inclusion has always been a central issue for me, so, good to see it referenced by the Minister: “A number of Honourable Members pointed to the issue of financial inclusion. There has been no decision on the issuance or design features of a CBDC, or indeed whether we will do one. In those decisions, considerations about financial inclusion and accessibility of central bank digital currencies will be at the heart of any technical design decision.”
The Minister was also clear to balance volatility with potential value: “…there has been substantial volatility. Notwithstanding those market fluctuations, the potential for DLT technology underpinning crypto assets remains powerful in many ways.”
A good example he drew upon: “Blockchain technology is being used in healthcare to store patients’ medical records securely; in housing to record property rights; and in supply chains to track the path and safety of food throughout the farm-to-table journey.”
Something I was involved in was referenced by the Minister in relation to supply chain and international trade where DLT’s potential is transformational: “In Government, we are developing opportunities here in the UK to use distributed ledger technology for customs and international trade, to ease the import of goods.”
Go beyond even the monetary characteristics, imagine this, a completely transformed, reimagined border, realised, not least through DLT’s ability to enable atomic settlement at that same said border.
The Minister’s positivity was clear: “As crypto technologies grow in significance, the UK Government are seeking ways to achieve global competitive advantage for the United Kingdom. We want to become the country of choice for those looking to create, innovate and build in the crypto space. We are already the leading European fintech hub, second only to the US worldwide. By making this country a hospitable place for crypto technologies, we can attract investment, generate new jobs, benefit from tax revenues, create a wave of groundbreaking new products and services, and bridge the current position of UK financial services into a new era.”
He highlighted the dark side well and how the Government are already attacking this: “As is always the case with innovation, there are risks that need to be managed. For one, crypto assets can be used to hide ill-gotten gains through corruption or organised crime. Since January 2020, crypto asset firms operating in the UK have been subject to the money laundering regulations. We recently brought forward legislation to implement the financial action taskforce travel rule for the transfer of crypto assets.”
Cryptoasset firms must conduct customer due diligence checks, just as banks do, including sanctions screenings. Through the Economic Crime (Transparency and Enforcement) Bill, we will give law enforcement new powers to seize and recover cryptoassets. As would be expected of a global financial centre, we will put a very robust system in place, and will never compromise on our high standards.
His conclusion was strong: “We are undertaking this work because we have a choice: the UK can either be a spectator as this technology transforms aspects of life, or we can become the best place in the world to start and scale crypto technologies. The Government choose the latter course. We want the UK to be the dominant global hub for crypto technologies, and so will build on the strengths of our thriving fintech sector, creating new jobs, developing ground-breaking new products and services.”
A good debate with reasons to be cheerful that, together, we can plot out the right regulatory framework to enable consumer protection, competition and economic and social benefits for us all in the years to come.