I was delighted yesterday to give the afternoon keynote on day one of Digital Assets Week, London. Delighted for several reasons, not least the event broadening the discussion beyond cryptocurrencies.
It was an opportunity to share with delegates the current approaches being undertaken by the UK Government and the present and upcoming legislation which could positively impact the sector and through that the economy as a whole.
Up to now(ish), digital assets, from a policy perspective have often found themselves way into the long grass, well away from any legislative intent. Certainly, pre-Covid and before Brexit, it was the case that such opportunities, the tokenization of the securities market for example, would be seen as niche, nice to have or even, nonsense.
The reality now, as it ought to have been then, is that digital assets and their variety of use cases cannot be might or maybe, they must, be must.
The reasons for this, obvious, but worth restating: opportunity killing levels of inflation, soaring energy prices – energy crisis – and cost-of-living crisis with food prices rising over 15% in a year.
The first matter to mention, Monday’s Treasury Select Committee hearing following the collapse of FTX. Speaking at the Committee, Ian Taylor, Executive Director of Crypto UK, said that there was a need for a joined-up collaborative approach between the crypto-industry and the regulator. He said:
“The FCA needs more resource, more understanding, and more engagement.
“To be fair, we had one CryptoSprint back in May and we call for more of these engagements with the regulator to help them upskill their understanding.
“Perhaps if there was regulation around trading venues or crypto service providers, we might not have seen some of the issues we have seen.
“Also, when members of the community came to speak to the committee in 2018, we asked for improvement in getting bank accounts for crypto firms in the UK.
“This is still a problem. Four years later, no crypto firm that wants to set up a business in the UK can get a bank relationship.”
Taylor also asked for more engagement with the crypto industry from the political sphere. He said:
“What we ask for is engagement with the community and subject matter experts.
“When John Glen announced he wants the UK to become a crypto hub, he also mentioned there was going to be an engagement group. We haven’t heard anything about that engagement group.
“We ask for engagement from experts in the industry at that engagement group, which is going to be chaired by ministers.”
“Also, we have seen some issues within the crypto assets sector. That is why at Crypto UK, we believe that getting clarity around some of the market participants will help the sector.”
In 2021, I laid down amendments to what became the Financial Services Act 2021 suggesting an advisory body could assist the Treasury Select Committee (TSC) in their work, not least when it came to the more complex areas such as digital assets. Whether one calls it an advisory board or an expert panel, moniker matters less than that need. The TSC should have that resource.
I then set out the opportunities afforded through the Financial Services and Markets Bill, currently making its way through the House of Commons. The FS and M Bill, the most significant financial services piece of legislation in twenty-two years. The approach to crypto and digital assets currently is somewhat different to that taken in the EU where it is more attempted ‘coverall’. It is perhaps for this reason that MICA is now on a delay. It’s not straightforward, not just in terms of philosophical approach, technical drafting is also right up there. Take for example the issue of ‘unhosted wallets’, now re-emerging as ‘self-hosted wallets.’
The Economic Secretary to the Treasury’s amendment to the FS and M Bill, in relation to Financial Conduct Authority (FCA) regulation of cryptocurrencies is helpful. The amendment will “clarify that the powers relating to financial promotion and regulated activity can be relied on to regulate cryptoassets and activities relating to cryptoassets.”
I think there will be more amending to come from Government and Parliament alike as the Bill progresses.
Another matter for consideration as the Bill progresses is the tokenization of securities. This has the potential to transform the London Stock Exchange by means potentially more material than 1986’s big bang. Further, looking at the tokenization of commodities, such as lithium and gold could serve as an opportunity to drive the reform of the London Metal Exchange, and the tokenization of the UK property market could unlock billions in new investment opportunity.
I also wanted very much to highlight the excellent work being undertaken by the Law Commission. The UK is in a prime position to lead the way in which digital assets are classified as property given the broad reach that the law of England and Wales has in governing international commercial contracts. As such, the UK will be leading the discussion in this area. Having worked with Sir Geoffrey Vos on several DLT related discussions, I know he is firmly of the view that this is an opportunity for English law to position itself as a good candidate to provide the legal foundation of the use of DLT and cryptoassets internationally.
In short, the current size of the global digital asset market, set against the size of the opportunities can only cause us to conclude that the UK can lead. The UK can lead in so many elements of this market if they choose to do so. And cost? For Government, not necessarily so much. The key role they can play, key and crucial, is that of the most perfect policy partner.
As always, it comes down to that most powerful force, that of partnership, of Government and industry, industry, and regulator and internationally across it all. Above all, that most potent of partnerships, that of talent and technology.
And what of the corridor, the coffee chat? What issues, what interventions, what asks were most being made of Government and Regulator? I’m listening and tomorrow, I will set them out.