Brexit poses a “valuable opportunity” for UK policymakers to get ahead of global rivals in regulating cryptoassets, according to a report.
The UK should use its “new trade policy as a vehicle” to beat the competition on legislation for digital initiatives and put itself at the forefront of finance’s “next generation of technological developments”, industry lobby group TheCityUK said.
This would include acting “as quickly as possible” to set out an internationally-compatible “gold standard” for cryptoassets, while choosing not to regulate all aspects and use cases of blockchain technology.
The report comes in the wake of a difficult month for cryptocurrencies where prices swung wildly, while major banks began sizing up plans to offer access to digital assets for their clients. Regulators are caught in the middle, assessing proposals for both private and government-backed digital currency projects.
The financial services think tank said current proposals to regulate the sector by the Treasury, published in January, failed to take into account other uses for cryptoassets and blockchain technology outside of consumer payments. The government’s broad-brush approach could in turn harm innovation and hold the UK back, it argued.
Instead, regulators must now set rules for the sector that “don’t inadvertently squash good ideas before they can mature and flourish”, said TheCityUK chief executive Miles Celic.
“The UK has a great track record in supporting innovation with regulation. Its regulatory fintech sandboxes, for example, have been copied around the world. Now we need to show similar vision and nimbleness in our regulatory approach to cryptoassets.”
Around a fifth of the UK population owns cryptoassets in 2021, according to the think tank — an increase of 558% in three years, when just 3% of the population had invested in the sector.
The government must now set clear definitions for what is and what is not regulated under future crypto rules, it said, and should not seek to regulate firms or business models beyond its borders.
It added that companies seeking to use blockchain as a way of innovating on record-keeping processes or other back-end financial processes should not be affected by any rule changes.
“There is a fierce global race underway to see which applications of [distributed ledger technology] and cryptoassets will win out, and who will grab the biggest slice of the value they promise,” said Celic.
“The ultimate winner is for markets to decide, but government and regulators have an important part to play.”
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