Cryptocurrency Regulation

Alun Cairns Excerpts

Tuesday 13th June 2023 Westminster Hall

[Dr Cameron]

I thank the hon. Member for his contribution. Yes, much of this will be led by the Treasury, and I imagine that regulation will be streamlined right across the United Kingdom. I am pleased to hear about developments in Northern Ireland; there have been many in Scotland, too. I spoke to Scotcoin not that long ago. This area has enthused and motivated people right across the United Kingdom, and it is important that we collaborate in order to realise its potential.

[Alun Cairns (Vale of Glamorgan) (Con)]

It is a privilege to serve under your chairmanship for the first time, Mrs Harris. I congratulate the hon. Lady on her work with the crypto and digital assets all-party parliamentary group and on its excellent report; it is a privilege to work with her. Some years ago, the UK became the world’s leading fintech centre because the regulatory environment was established with a clear direction from Government, which allowed businesses to invest and regulators to lean positively towards the sector’s development. Does she agree that if the positive record of the Government of that time is replicated with cryptocurrency, the UK will have a similar opportunity to be a leading nation in this sector, as well as in other financial technologies?

[Dr Cameron]

I thank the right hon. Member for his valuable contribution. I totally agree. I saw some research from PitchBook last month that suggested that since the EU produced its regulatory framework on markets in cryptoassets—MiCA—investment in the EU has increased substantially. With a regulatory pathway over the next 12 to 18 months at the maximum, the UK could harness a leadership position in this sector. That will be essential because of the digital revolution that is happening. The next generation is a digital generation already. This is the way that things are moving in the world, and the UK must be at the forefront. I am pleased that the Minister is harnessing his skills and endeavours to ensure that happens.

We heard that without comprehensive regulation there are considerable risks in the industry, particularly regarding consumer protection, economic crime and financial stability, which I will speak about later. While there are clearly legitimate concerns about the potential risk posed by cryptocurrency and digital assets, it is important to acknowledge a number of positive use cases that show the potential benefits of the new technology.

One such example is the use of cryptocurrency at the frontline of the conflict in Ukraine. Many may not know this, but following the Russian invasion, the Ukrainian Government appealed for cryptocurrency donations and received millions of dollars in cryptocurrency to support military and humanitarian efforts on the frontline. Ukraine’s Deputy Minister of Digital Transformation, Alex Bornyakov, has said that cryptocurrency has been “essential” to Ukraine’s response to the Russian invasion. I am delighted to welcome Minister Bornyakov and his team, who are in the Public Gallery. We are delighted to have them here today.

Our inquiry heard that the growth of the sector suggests that cryptocurrency is here to stay. The latest research by the Financial Conduct Authority shows that cryptocurrency ownership has almost doubled in the last year, with almost one in 10 people surveyed owning cryptocurrency in 2022. That highlights the need for proper, clear regulation to protect consumers and support the industry’s growth in a reasonable way. As countries around the world move quickly to develop regulatory frameworks, we feel that the UK must move within the next 12 to 18 months to harness the industry’s potential in order not to lose out to other jurisdictions.

Throughout our inquiry, we heard that there are potential barriers to the UK’s realising its vision, which we set out in the report. We heard that the process for cryptoasset businesses to enter the UK is very lengthy, with limited engagement at times, and that many businesses ultimately choose to invest outside the UK. While the Government have said that they are open for business and for companies in the sector to set up and scale up, we heard that that has not been the experience of many companies seeking to obtain licences to operate in the UK. They have seen very lengthy delays and, in many cases, had their applications rejected. That is fine, because we do not want a race to the bottom, but it often happens without a clear explanation and with limited communication throughout the process.

To date, only 41 firms have been approved to operate in the UK. Will the Minister say what more the Government can do to ensure that legitimate and responsible firms that want to set up and scale up here are able to do so? What steps are the Government taking to ensure that regulators have the resources they need to deliver on their responsibility to process applications?

--- Later in debate ---

[The Economic Secretary to the Treasury (Andrew Griffith)]

It is a pleasure for me to serve under your chairmanship, Mrs Harris; congratulations on your first time chairing our proceedings in Westminster Hall. I congratulate the hon. Member for East Kilbride, Strathaven and Lesmahagow (Dr Cameron) on once again securing a debate in Parliament on crypto regulation. It is particularly apposite to do so during London Tech Week. I would also like to extend a welcome to Minister Bornyakov and his team, who are watching this debate from the Public Gallery.

I know that the hon. Member for East Kilbride, Strathaven and Lesmahagow shares with me and this Government a desire for the UK to be a leader in this space; that is our vision. I thank her and the crypto and digital assets all-party parliamentary group, which she chairs, for its excellent recent report, which is timely and adds to the growing canon of work. It is a good read, and I commend it to all parliamentarians and policymakers. One of the valuable functions that that group performs is to raise the level of understanding of this exciting but sometimes challenging new domain.

Let me be clear. The Government’s goal is simple: it is for the UK to be an open, well-regulated and technologically advanced society. The extraordinary technology under- pinning distributed ledger technology, or DLT, could have profound and positive impacts across multiple sectors in the UK, including more efficient trading, cheaper payments across borders, more choice for consumers and, as the hon. Member for East Kilbride, Strathaven and Lesmahagow said, the benefit for financial inclusion. Beyond that, it is part of the wider Web3 decentralised movement that is leading to a radical rethink about what the future of the internet might look like and who—which sort of organisations—determines that. McKinsey research suggests that this could be

“a paradigm shift in the business model…by making disintermediation a core element”,

while a research analytics firm estimates that the global market size of Web3 could reach $81.5 billion by 2030.

[Alun Cairns]

I congratulate my hon. Friend the Minister on pressing ahead with the digital pound that is under consideration in order to ensure that the UK is at the forefront of digital currencies. But is he confident that all the regulators—within the Bank of England for the digital pound, but also the Financial Conduct Authority and others—have the capacity and expertise necessary to deliver the vision that the all-party group and the Government are seeking to set out? Does he agree that it is worrying that many crypto companies find it challenging to open bank accounts simply to conduct their business?

[Andrew Griffith]

I pay tribute to my right hon. Friend for the points that he made about how important it is that we lean into this space. He used the excellent and apposite example of fintech—a flourishing industry, for which the UK is genuinely one of the leading centres in the world. I share his concern about the availability of bank accounts. As he understands—I am sure he would not wish it otherwise—that is a commercial decision for organisations, but to the extent that the regulatory framework, or indeed the regulatory culture, is a contributing factor, Parliament will bring cryptocurrency into the regulated domain and decide that it is a lawful activity that could reap many benefits for the United Kingdom. It would, of course, be a concern if those who take part in this lawful and well-regulated activity were unable to procure bank accounts, so I can undertake to keep a close eye on that. I do not plan to make an immediate intervention, but he and other colleagues have raised the issue, as has the APPG. I will undertake to keep a close eye on it, and I am open to hearing examples of where people cannot open bank accounts.

The hon. Member for Strangford (Jim Shannon) has left the room, but I can give him the assurances he seeks. As a proud Unionist, it is a delight to have such a diverse set of representatives from across all parts of the Union. It is wonderful to have contributions from all parts of the Union today, but financial services is a reserved matter, and the Treasury and Parliament will bring forward the right regulations. The regulators have hitherto been clear about some of the risks in this domain, and we seek to strike the appropriate balance between not regulating and introducing appropriate regulations while recognising the potential consumer harms and making sure that we have effective, clear, proportionate and timely regulation. Those seem to be entirely desirable attributes.