Cryptocurrencies

Baroness Penn Excerpts

Wednesday 2nd March 2022 Lords Chamber

[Lord Haskel]

To ask Her Majesty’s Government what steps they are taking to regulate and supervise the use of cryptocurrencies.

[Baroness Penn (Con)]

Her Majesty’s Treasury and UK authorities have taken a series of actions to support innovation while mitigating risks to stability and market integrity. These include launching a new anti-money laundering and counterterrorist financing regime for crypto assets in 2020, and consulting on a proposal to ensure that crypto assets, known as stablecoins, meet the same high standards expected of other payment methods. The Government will issue our response to this consultation shortly. In January, the Government announced our intention to legislate to bring certain crypto assets into the scope of financial promotions regulation, requiring them to be fair, clear and not misleading.

[Lord Haskel (Lab)]

I thank the Minister for her response, which certainly deals with the marketing and promotion of crypto but does not deal with its actual use. For example, as reported in today’s Financial Times, crypto is being used as a way round the financial sanctions against Russia and can be used to get round the controls of the proposed economic crime Bill. Does the Minister agree with the Financial Stability Board that this poses a risk to the stability of traditional currencies and public security? Will the Government listen to these concerns and apply strong, prudential controls? Most importantly, will they give agencies the resources and powers to enforce controls, and, for example, call on the G20 to co-ordinate international regulation and supervision?

[Baroness Penn (Con)]

In my original Answer I did not only talk about the financial promotion of crypto assets; I also talked about the regulation of stablecoin. In response to the noble Lord’s point about the anti-money laundering regulations and counterterrorist financing regulations which apply to crypto assets, I would like to reassure noble Lords that the regulations imposing sanctions on Russia apply to crypto assets. Legislation being introduced this week in the economic crime Bill will give the Office of Financial Sanctions Implementation the powers it needs to enforce financial sanctions.

[Lord Forsyth of Drumlean (Con)]

Does my noble friend not think that the point made by the noble Lord, Lord Haskel, is very important in the current context of sanctions? Is it a practical proposition to ask the providers of cryptocurrency facilities to remove from their list anyone with a Russian email address?

[Baroness Penn (Con)]

I absolutely agree on the importance of this issue. On firms placing blocks on Russian transactions, the Government and the FCA have communicated with crypto firms to ensure that they understand their obligations with regards to sanctions, which include applying risk-based controls to mitigate the risk of sanctions evasion. However, we do not require that all Russian persons have their accounts suspended or frozen; that would not be in line with our current approach.

[Lord Cromwell (CB)]

Does the Minister agree that cryptocurrencies, which are unfortunately named, and all digital assets are widely misunderstood? Does she further agree that they are here, we have them—more than 3 million people in this country already hold them—and when they are properly regulated, as the noble Lord, Lord Haskel, would have us do, they will be an important and innovative growth opportunity for the UK economy? Cryptocurrencies were referred to by another noble Lord this week as “the beast”. Will the Minister be “the beauty” whose good offices turn the beast into a handsome prince?

[Baroness Penn (Con)]

I agree with all the points that the noble Lord makes. Earlier this week I tried to emphasise that, while we are cognisant of risks from certain types of crypto assets and will regulate appropriately, we are also keen to see the opportunities for the technology that lies behind these and want to promote innovation in a secure way.

[Lord Browne of Ladyton (Lab)]

My Lords, I cannot resist the temptation to engage a Minister on this issue for the third day in a row. From January 2020 firms carrying out crypto asset activities in the UK have had to comply with the money laundering, terrorist financing and transfer of funds regulations and to register with the FCA. The FCA helpfully publish a list of 220 or more businesses that appear to be, in its words,

“carrying on crypto asset activity that is not registered with (the FCA)”

for anti-money laundering purposes. I have given the Minister notice of my question, which is: why are we allowing—if we are—non-compliant crypto asset businesses to trade with impunity, and when can we expect that they will be put out of business?

[Baroness Penn (Con)]

I hope the third time is at least in part the charm. It is a criminal offence for a crypto asset exchange provider or custodian wallet provider to operate in the UK without anti-money laundering registration, and the FCA is empowered to take enforcement action against such a firm and its offices. The FCA is contacting firms on this list to establish whether they are operating in the UK, and it will take appropriate follow-up action.

[Lord Bridges of Headley (Con)]

My Lords, I would like to pick my noble friend up on the Answer she gave to the noble Lord, Lord Haskel. My understanding is that the Government have consulted on the Financial Action Task Force’s recommendation that international standards be brought in to clamp down on crypto- currencies being used for money laundering, terrorist financing and sanctions busting. There was a consultation last summer, and my understanding is that it ended on 14 October. Can she be very precise, given the current international situation and crisis we are in: when will the Government implement these recommendations?

[Baroness Penn (Con)]

My Lords, I will have to write to my noble friend with the precise answer to that question, but I can say that there were discussions at the G7 yesterday, in part on this issue, following which we are considering how the UK along with its allies can prevent crypto assets emerging as loopholes to evade sanctions. Also, at an international level we will seek to intensify our lobbying efforts to drive improved anti-money laundering and counterterrorist financing regulation, licensing and supervision across other jurisdictions, as well as the UK.

[Baroness Kramer (LD)]

My Lords, at this moment, thanks to economic sanctions, ordinary Russians effectively cannot transfer from roubles into currencies such as dollars and pounds, but they can move into crypto if they are not one of the named sanctioned individuals. There are exceptions: the exchange Coinbase has shut Russia out entirely, and so have some others. Binance has not and, notably, is registered in the Cayman Islands. On Monday, the Minister said she would look to talk to those exchanges and make sure that they understood that they had to follow the advice of the Ukrainian Government and shut out Russia. Has she done so, and why are the Cayman Islands not co-operating?

--- Later in debate ---

[Baroness Penn (Con)]

My Lords, I did take the point that the noble Baroness raised back to the Treasury. As I said in an earlier answer, on blocking Russian transactions, the position is that firms are currently obliged to apply risk-based controls to mitigate the risk of sanctions evasion, rather than taking a blanket approach.

[Lord Young of Cookham (Con)]

My Lords, further to the question from the noble Lord, Lord Cromwell, I do indeed believe that this is a beast that needs to be tamed. Has my noble friend read the comments of the Governor of the Bank of England, who said of cryptos:

“It’s not a financial stability issue today, but it has all the potential to be one, particularly if the system starts getting leverage into it”?


Does this not underline the need for some sort of regulation if we are to avoid the problems we saw in 2008, when financial institutions and others dealt with products that were not fully understood and not properly regulated, leading to a major recession?

[Baroness Penn (Con)]

My Lords, I have indeed read those comments by the Governor of the Bank of England. My noble friend is absolutely right that the situation is dynamic and the market in crypto assets is growing. That is why the Bank of England is monitoring crypto assets’ financial stability. It is also why the Cryptoassets Taskforce, the Treasury, the Financial Conduct Authority and Bank of England are taking an approach to regulate aspects of crypto assets, particularly those that pose the greatest threat to our financial stability.

[Lord Sikka (Lab)]

My Lords, there is no specific tax legislation relating to cryptocurrency assets, so holders of them are instead covered by broader tax rules, which is highly unsatisfactory. How long do the Government need to deal with this problem?

[Baroness Penn (Con)]

My Lords, profits from trading in and gains from disposing of crypto assets are taxed in the same way and at the same rate as those from other assets, as the noble Lord says. HMRC’s Cryptoassets Manual is one of the most detailed publications from any tax administration and explains the tax consequences for different types of transactions involving crypto assets, for both businesses accepting them and individuals using them.