The UK government recently announced a milestone day for global blockchain adoption. But how far reaching are their proposals and can they take advantage of purported post-Brexit freedoms to build a world-leading blockchain hub.
At the top level, the government wants to balance out the wild west elements of digital coins, while capitalising on the promise of a glimmering tech-powered economy.
The backdrop is a building clamour from global regulators to clamp down on cryptocurrency trading after the spectacular collapse of FTX and stable coin issuer, Terra.
Ministers have pledged to “mitigate the most significant risks” of blockchain technologies, while “harnessing their advantages”.
The government has set out its broad aims for future governing in three key areas:
- Craft rules on crypto-asset promotions which are fair, clear and not misleading
- Deliver stringent data-reporting requirements, including with regulators
- Implement new regulations to prevent so-called ‘pump and dumps’ where bad faith actor artificially inflate prices
There are two policy arrows driving the government initiative. The first is to enable technological change and innovation, and this, according to economic secretary to the Treasury Andrew Griffith, ‘includes crypto-asset technology’.
The second policy arrow is around consumer protection, where Griffith sets out the government’s safeguarding stall.
“We must also protect consumers who are embracing this new technology – ensuring robust, transparent and fair standards,” he said.
The rules also target exchanges but also financial intermediaries such as custodians and seek to set up a regime around the lending of crypto assets. Data reporting will be central to the new framework.
The move is also a clarion call for industry members to weigh in on the future governance of the crypto and blockchain space. The Treasury is inviting industry feedback on better operation resilience, market integrity and consumer protection.
We expect the debate to be fiery as future visions of bitcoin and alternative crypto currencies, as establishment groups begin to measure what they believe should be the independence of cryptocurrencies.
Breaking from principles?
Fundamental to the original appeal of cryptocurrency was its independence from traditional financial institutions. Moves to allow establishment control will infuriate a core group of true believers.
The Treasury would do well to remember that the popularity of cryptocurrency lies in its very independence from traditional financial networks. Any move that is seen as over-reach of establishment control will infuriate many founding members of the blockchain community.
Brexit-based hub
We see the U.K. is positioning itself with a regime that is as comprehensive as a European regime – but what the industry is watching is the degree UK lawmakers might diverge from that.
The Financial Services and Markets Bill – a law which, from the start, the government billed is a chance to set its independent financial rules. The Government is hoping it can foster a more agile and internationally competitive framework that will unlock the potential of U.K. financial services to stimulate growth in areas such as blockchain technology.
The proof will undoubtedly be in the pudding – but if Britain can forge a new financial centre that is safer and easier to do business expect blockchain companies to flock to London.
