UK authorities are not skilled enough to regulate digital assets such as cryptocurrencies effectively, says a new report from a group of MPs. Issues with digital asset applications have seen businesses choose to invest outside of the UK, the report claims.
The report, released earlier this week, has been produced by the Crypto and Digital Assets All Political Parliamentary Group (APPG), which received input from across the financial sector. Operators, regulators and industry experts provided views on the need for regulation of digital assets and cryptocurrency, with written submissions and evidence sessions also held in Parliament.
The APPG is made up of cross-party MPs and Lords in the UK parliament and is chaired by SNP MP Lisa Cameron.
A total of 53 recommendations have been made to the UK government on areas of importance. These included the UK’s approach to the regulation of crypto, the role of UK regulators, Central Bank Digital Currencies such as the ‘Digital Pound’ and the risks to consumer protection and economic crime.
The report calls for urgent regulation of the industry in the UK as well as made recommendations on how the UK needed to take steps to cement its position as a global hub for crypto and digital asset investment. However, it also drew on concerns that the regulators were not well enough equipped to deal with the industry.
The UK is well-positioned to become a global hub for crypto
The APPG said in its report that the UK government should seek to build on its existing strengths as a leader in financial services to become the global hub for digital assets and fintech investment. It also said that the industry offered “significant investment opportunities” for the UK and that an effort needed to be made in creating regional fintech hubs and levelling up.
“I am delighted to present the group’s inaugural report considering the potential opportunities and challenges of realising the Government’s vision for the UK to become a global hub for Cryptocurrency and Digital Assets,” said Cameron. “Given the rapid growth of cryptocurrency and digital assets, the timing of this report is vital to protect consumers whilst ensuring the UK’s leadership in this sector can be realised.”
The report also found that there was an opportunity for job creation and economic growth due to the expansion of the sector and said the government needed to create the “right conditions” to attract inward investment. There also needed to be an effort in supporting the development of businesses already set up in the UK so there would be no risk of losing growth to other countries.
Review needed to develop fintech skills
Many of the recommendations in the report honed in on the skillset required to effectively manage the digital asset sector. The APPG said that the government needed to look for ways to “cultivate and attract” the right talent needed to grow emerging technology offerings in fintech and suggested a review to understand the educational and business opportunities across the UK.
“The inquiry heard of the significant economic benefits that a well-regulated and responsible cryptocurrency and digital assets sector could bring to the UK,” the report says. In 2021, King’s College London found there were over 14,000 jobs advertised on LinkedIn in the cryptocurrency and blockchain industry worldwide, and almost a quarter of those were UK-based.
It was also recommended that the government put “sufficient resources and expertise” to deliver on its vision of becoming a crypto hub. Alongside regulators, the APPG said that considerations needed to be made on developing more domain-specific knowledge and expertise within the public sector so the sector could be regulated properly.
“We heard that Government would benefit from dedicated cryptocurrency and digital asset units to ensure it has the necessary skills and understanding required to achieve its vision,” the report said. “Government should also consider the appointment of a ‘Crypto Tsar’ […] who can help lead this work and who can coordinate across Government departments to ensure a consistent approach.”
Process for crypto in the UK is “too burdensome”
The Inquiry also found that while the UK had strengths in fintech, the process for businesses was a weakness.
“The Inquiry heard that at present the process for cryptocurrency and digital asset businesses to enter the UK is too burdensome and lengthy, resulting in many businesses ultimately choosing to invest outside of the UK,” the report explained. It recommended that the UK government ensure that regulators are properly equipped to be able to deliver the Government’s vision.
However, the APPG also warned that there were concerns as to whether authorities and regulators in the UK had the appropriate knowledge to deliver on their new industry responsibilities.
“The FCA registration regime in particular is in need of significantly greater resources to ensure firms’ applications can be reviewed within a reasonable period of time,” the APPG said in its review. “All UK regulators related to the sector should have dedicated cryptocurrency and digital assets units with proper resource and sector understanding to deliver on their responsibilities.”
Industry association happy with the crypto APPG report
Su Carpenter, director of operations at industry trade association CryptoUK, told Tech Monitor that the association was “more than happy” with the report, saying it was “detailed, considered and balanced.”
“We know [the report] has taken into account numerous submissions from across the industry and demonstrates a broad acknowledgement of the key issues we know, from speaking with our members and the wider community, are critical areas that the government has to address,” she explained.
One of the most pressing pieces of feedback from the association’s members was the need for “robust, proportionate and balanced regulation” so operators had more clarity.
“There are multiple pressure points for our members, including the access to UK Bank accounts and professional services to allow them to operate competitively in the UK,” Carpenter continued. “Additionally, the recent bans and limits on transitions by UK banks to crypto exchanges have caused serious concerns for businesses wanting to continue operating with UK customers.”
The operations director also said that members wanted UK regulators to be resourced effectively to help grow the UK crypto sector. This was also the most urgent action from the report in Carpenter’s opinion.
“There are of course questions about the next steps and how this progresses to the next stage of discussions and influence over the direction and approach of the UK but holistically we are in agreement with the findings and recommendations within the report as a first step,” she concluded.
Whether the government will take the report’s recommendations onboard is questionable, given that its enthusiasm for crypto assets has waned in recent months. In April, it was revealed plans for a Royal Mint-backed NFT had been scrapped by the Treasury. And last month a group of MPs released a report saying the crypto industry should be regulated like gambling, due to the high level of risk attached.
Read more: Bitcoin ‘on the road to irrelevance’
