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The next government will need to act quickly to maintain global leadership
The UK elections will be held on 4 July and polls indicate that a new Labor government is inevitable. The crypto ecosystem in the UK has grown steadily under various, almost exclusively conservative, governments since the inception of Bitcoin 15 years ago. So what does this change in leadership mean for the future of cryptocurrencies?
Laura Navaratnam is the UK Policy Lead for the Crypto Council for Innovation. The opinions expressed in this column are those of the author and do not necessarily reflect those of CoinDesk Inc. or its owners and affiliates.
Before the election was announced, the industry had become accustomed to a government that, in recent times, has generally been understanding and supportive of cryptocurrencies. In 2022, John Glen, the economic secretary to the Treasury (also known as the City minister) pledged to make the UK a global hub for crypto-asset technologies. This vow was repeated by his successors Andrew Griffith in 2023 and, more recently, Bim Afolami, who solicited Regulators need to keep a close watch on the cryptocurrency industry to ensure its success is not “undermined.” Broad powers were introduced in the Financial Services and Markets Bill, bringing stablecoins into the regulatory ambit of the Financial Conduct Authority, and clarity was promised on the treatment of staking. Now, with Labor polling at around 41%, we are days away from a sea change in 14 years of Tory leadership.
Labor has published its manifest two weeks ago. There were no references to digital assets or anything like that. Even more surprising is that there was no comprehensive reference to financial services. We can only assume that the Labor Party has not developed a position on crypto and blockchain technologies, but this will need to change quickly. Fortunately, there are some areas where the work could quickly make a positive impact without having to commit huge amounts of time or resources.
Finalize regulation on stablecoins. In order for regulators to consult on the rules, the next government will need to prepare the final legislative instrument to bring stablecoins into the regulatory fold. Based on previous promises that this would happen by the summer, the legislation is likely ready and waiting. The next Labour government will need to rely on its Treasury policy experts and pass this legislation.
Regulatory clarity on staking. Again, this is an area where the industry has been promised clarity. Since staking is a fundamental activity that ensures the continued security and evolution of blockchain networks, it is crucial to understand and act correctly where and how it could be captured by financial services regulation.
Guidance on financial promotions. The so-called FinProm Rules have been in place for six months, and territorial breadth combined with rigorous specificity is creating chains of regulation across the industry, as companies with questionable relevance fall under its purview. The time has come to review the original policy intent and provide clarity to the sector on what does and does not fit.
The digital asset ecosystem is not going away. Regulators globally have realized that to maintain a competitive market, they must embrace Web3 and crypto assets and introduce robust but proportionate regulatory regimes to manage the new reality.
Without swift and decisive action from the new government, the UK will go from being a global leader in innovation to fast following jurisdictions such as the European Union and South East Asia, where regulatory regimes are in place. Such concessions are difficult, perhaps impossible, to recover.