Earlier this week the UK government set out plans to recognize a number of digital stable coins and to legislate and bring them into the UK’s payment infrastructure. The move aims to increase the ease of operation for UK stable coin issuers and digital asset service providers by establishing a regulatory framework which in time will expand to include other digital assets, including bitcoin.
Speaking at the Innovate Finance Global Summit 2022, secretary to the Treasury John Glenn confirmed the UKs ambition of becoming a global hub for digital asset technology and outlined a series of measures that the government is taking to ensure the UK “leads the way” in financial technology innovation and implementation.
Amongst the measures announced is the establishment of a “Cryptoasset Engagement Group” to be chaired by the Economic secretary, which will bring together regulators and industry leaders to advise government on the key issues facing the sector.
Furthermore, the UK financial regulator, the Financial Conduct Authority (FCA) will itself hold a two-day conference (CryptoSprint) next month with top industry players and will explore the development of a regulatory frame work for the crypto asset industry.
Notably, a review of the UK taxation policy on crypto assets will also take place with a focus on increasing competitiveness within the tax code in the hope of encouraging further investment in digital asset technology. Part of the review will look at the possibility of extending the Investment Manager exemption to include some or all crypto assets.
The introduction of a “financial industry infrastructure sandbox” with the aim of allowing companies to experiment with blockchain and other applicable technologies with greater ease is another component of the governments drive towards a digital future for the UK financial services sector.
Whilst the first steps announced will be mainly geared towards stablecoins,
it is clear this is just the first move towards wider recognition, regulation and of course taxation of all manner of digital assets such as cryptocurrencies and non-fungible tokens.
The announcements are good news in terms of bringing digital assets into the mainstream but the introduction of increased regulation will not necessarily be well received by all in the crypto community. Many participants in the crypto asset space believe that a decentralised digital economy without bank or government involvement is the true way to implement blockchain technology, a concept introduced by the original bitcoin white paper.
Along with coins and tokens, Decentralised Autonomous Organisations (DAOs) and decentralised finance (DeFi) platforms are also expected to come under increased scrutiny as their tax and legal status is reviewed by legislators, potentially raising questions about their ability to remain decentralized and operate legally.
The fact is, technology develops faster than governments can legislate and this leaves regulators playing a continuous game of catch up.
Therefore, it may become more practical for governments to aim regulation at the people using the technology rather than the those providing it.
Whilst most citizens will begrudgingly accept increased legislation and being taxed on profits made by decentralized platforms, it is highly unlikely that decentralized communities will tolerate government involvement in the running or structuring of their organisations.
Recent European Union proposals to enforce stricter rules for private wallets, which would require all transactions over 1,000 Euros to be automatically reported to authorities, met with a fierce backlash from the crypto community and industry stakeholders alike with Ledger Wallet CEO Pascal Gauthier accusing the EU of “choosing fear over freedom”
If the UK is to really become a Global Hub for digital innovation it must be willing to accept all aspects of the digital ecosystem and consult with the communities that have already embraced cryptocurrencies and other digital assets, and not just seek to accommodate the banks and businessmen seeking to profit from them now.