Having been, quite literally, heralded, in the Queen’s Speech on May 11, this week was the week of the Financial Services and Markets Bill. Forming a significant slice of the Chancellor’s speech at Mansion House on Tuesday it was given First Reading down the road in the House of Commons the next day.
While ‘First Reading’ is largely a procedural matter, it does afford us the opportunity to flick through the Bill’s 330 pages – yes, it’s a big Bill – and see what is there from a crypto perspective and, indeed, what is not.
The Chancellor’s speech at the Financial and Professional Services Dinner at Mansion House set out the importance of the financial services sector to the UK economy, and the central role of the Financial Services and Markets Bill in delivering the government’s vision for an open, green, and technologically advanced financial services sector that is globally competitive.
Before focusing specifically on crypto, its worth mentioning the Bill, in broad, is said to seize the opportunities of EU Exit, tailoring financial services regulation to UK markets to bolster the competitiveness of the UK as a global financial centre and deliver better outcomes for consumers and business’.
The Bill will:
- Implement the outcomes of the future regulatory framework review;
- Maintain the UK’s position as an open and global financial hub;
- Harness the opportunities of innovative technologies in financial services;
- Bolster the competitiveness of UK markets and promote the effective use of capital; and,
- Support the levelling up agenda, promote financial inclusion and consumer protection.
In short, that’s the stated purpose of the 330 pages. Focusing in, perhaps the most pertinent line from the Chancellor’s Mansion House speech in respect of the Bill in terms of crypto:
“It reinforces the UK’s position as a leading centre for technology as we safely adopt crypto assets.”
“That’s our vision to make the United Kingdom one of the most dynamic financial centres in the world.”
What this looks like in the current Bill as drafted:
Settlement of crypto assets – Section 22 of the Bill contains a new power for HM Treasury to introduce bespoke rules on the regulation of payments, payment systems and service providers in relation to the payments that include “digital settlement assets”, which includes any digital representation of value or rights, whether or not cryptographically secured, that
“(a) can be used for the settlement of payment obligations;
(b) can be transferred, stored or traded electronically, and
(c) uses technology supporting the recording or storage of data (which may include distributed ledger technology).”
It is intended that this will enable the government to place payments technology that relies on distributed ledger technology or other forms of cryptography – as well as novel payment technology using other digital methodologies –on a clearer regulatory footing, in doing so supporting the UK as a recognised centre for digital technology in the financial services space.
The policy intention is clearly to enable certain types of stablecoin to be regulated as a form of payment in the UK, which in the view of the Treasury could facilitate them becoming a widespread means of payment, driving customer choice and efficiency and further reinforcing the role of the UK as a leading player in the crypto space.
And the House of Lords was right into this on Thursday with Minister Penn, for HM Treasury, answering questions on the UK’s crypto aspirations stating:
“The Government’s clear message to crypto asset firms is that the UK is open for business. The Government have announced a range of reforms to position the UK as a crypto asset technology hub, including legislating to bring stablecoins into payments regulation, committing to consult on regulation on a broader set of crypto asset activities later this year and exploring ways to enhance the competitiveness of the UK tax system to further encourage the development of the crypto asset market.
“It is not necessarily the Government’s position that crypto assets offer a better means of exchange, but they represent part of a trend of rapid innovation in financial technology. That is something we want to encourage, particularly because of some of the technology underlying some crypto assets. But the noble and learned Lord is right that they also pose risks to consumers. That is why we have already taken action on, for example, financial promotions of crypto assets and are looking at the wider question of crypto asset regulation in a consultation later this year.
“I would like to reassure my noble friend that we are taking a staged and proportionate approach to crypto asset regulation that is sensitive to the risks posed but also responsive to new developments in the market. I have referred to a number of areas in which we have already regulated for crypto assets, and in the forthcoming Financial Services and Markets Bill we will legislate to regulate stablecoins. Later this year, we will also consult on the wider regulation of the sector. I absolutely agree with him about the opportunities this market can provide for the UK economy.”
In summary, I think Minister Penn’s responses demonstrate a positive, proportionate approach to crypto from the government and the benefits that may, not will, be realised in Britain.
In conclusion, such credit for the Bill must be given to John Glen who, as Economic Secretary, did so much good work for such a time, not least in his understanding of the possibilities that various technologies could bring. Whatever else may happen after the ‘summer contest’ I think, rightly so, to quote a phrase, he will be back.
The Bill is said to usher in the largest change to financial services in a generation. For once, I think that claim is germane.
And to the crypto firms, the business’, worth reflecting, no matter how good the technology, the runway, every single scheme, start up or scaler in this space will do well to have a good dose of monetary policy understanding and imbedding in their approach for the benefit of them and us.
Finally, I will be looking at bringing forward multiple amendments to the Bill when it arrives in the House of Lords and am, as ever, very interested in what readers believe should be in the bill that isn’t and perhaps, what is and should not ? Do, please, be in touch.
As ever, the proof will be in the proverbial pudding, not in the ‘of work’.
Lord Holmes of Richmond MBE