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The next UK government must act quickly to regulate (and keep) crypto companies
The UK election is set for July 4, and polls suggest a new Labour government is inevitable. The UK cryptocurrency ecosystem has grown steadily under various, almost exclusively Conservative, governments since Bitcoin’s inception 15 years ago. So what does this change in leadership mean for the future of cryptocurrency?
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, of late, generally understood and supported cryptocurrencies. In 2022, John Glen, the Economic Secretary to the Treasury (also known as the City Minister) has 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, by 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.
The Labour Party has released its manifest two weeks ago. There were no references to digital assets or anything adjacent. Even more surprisingly, there was no reference to financial services at all. We can only assume that the Labor Party has not developed a position on crypto and blockchain technologies, but this will have to change quickly. Fortunately, there are some areas where the Labor Party 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 clarification on staking. Again, this is an area where the industry has been promised clarity. Since staking is a critical activity that ensures the continued security and evolution of blockchain networks, it is critical to understand and act correctly where and how it might be captured by financial services regulation.
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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 a fast follower of jurisdictions such as the European Union and South East Asia, where regulatory regimes are in place . Such concessions are difficult, perhaps impossible, to recover.