Cryptoassets: Regulation

Debate between Richard Fuller and Lisa Cameron

Wednesday 7th September 2022 Westminster Hall

[Richard Fuller]

Absolutely. One of the issues, which the hon. Gentleman raised in his speech, is how pervasive the technology has become since 2008. We are still looking at the different applications and different levels of the technology, as I outlined at the start of my speech, both within financial services and more broadly within Government. He mentioned the issues in Estonia and in the economy as a whole. The technology has been around for a while, but it has many tentacles that have spread in many different ways through countries and international economies.

The hon. Gentleman will also know that in addition to that growth, as he and other hon. Members have mentioned, there has been substantial volatility. Notwithstanding those market fluctuations, the potential for DLT technology underpinning cryptoassets remains powerful in many ways. Across the world, NFTs are entering common parlance. The hon. Member for Erith and Thamesmead (Abena Oppong-Asare) talked about one that could have a revolutionary impact on the creative industries.

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. 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. DLT has the potential to change how our financial markets work, too. That is why new have started work to understand how it might be applied to a UK sovereign debt instrument.

Even the fundamental architecture of the internet may undergo changes as Web3 becomes more popular, with blockchain offering the potential to drive a more decentralised, user-owned ecosystem. The innovation powered by DLT could spill across society, well beyond the scope of today’s debate, which rightly focuses on financial services.

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.

[Dr Cameron]

I thank the Minister for his important points about taking things forward in a progressive way. Given the current uncertainty in the Government sphere, while the UK is still committed to making the UK the global home of crypto, what progress has been made in establishing the cryptoasset engagement group that was announced in April, to bring on board leaders from the sector and engage positively?

[Richard Fuller]

The hon. Lady is right to mention the importance of bringing people together. I will refer to that. May I also take the opportunity to re-emphasise the work that her APPG is currently doing on regulation for consumer protection in this space? There are multiple participants and interests, so I echo her point.

At the forefront of this is something that we have talked a lot about when it comes to the culture. We have highly driven entrepreneurs with great skills. Having their teams in the UK enables us to build the wealth and experience that can power further discoveries and growth in a constructive way.

As is always the case with innovation, there are risks that need to be managed. For one, cryptoassets can be used to hide ill-gotten gains through corruption or organised crime. Since January 2020, cryptoasset 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 cryptoassets.

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. That was the key point made by the SNP spokesman, the hon. Member for Glenrothes (Peter Grant).

Separately, there are legitimate concerns, highlighted by the hon. Member for West Dunbartonshire and echoed by my hon. Friend the Member for Rother Valley (Alexander Stafford), about the energy intensiveness in the process of creating some types of cryptoassets. As a global centre for green finance, we are already looking closely at energy usage associated with certain crypto technologies, and I will take away the point the hon. Member for West Dunbartonshire made about carbon neutral data centres regulation.

We have also said that we will seek to protect consumers by legislating to bring certain cryptoassets into the scope of financial promotions regulation, because it is essential that investors understand the risks they are taking and that there is more transparency from firms. I know that some firms are concerned about the way in which this regime might be implemented, to the possible detriment of UK firms. We are looking very seriously at that issue.

I say in reply to the hon. Member for Erith and Thamesmead that the UK’s approach on a lot to do with financial services is to have an agile system that relies robustly on the regulators to write their rules as things are brought within the regulatory perimeter. That underpins our approach. It underpins the work in the new Financial Services and Markets Bill, and that is distinct from the perhaps more legalistic approach of the European Union trying to define in statute right from the start what the regulations should be. In the United Kingdom we trust regulators to work at speed and effectively to write the rule books that are right at that point in time.