U.K.’s Next Government Must Act Fast to Regulate (and Retain) Crypto Firms

Laura Navaratnam serves as the U.K. representative for the Crypto Council for Innovation’s policy team. The perspectives shared in this article are solely those of the writer and aren’t necessarily aligned with those held by CoinDesk Inc. or its stakeholders.

Before the election announcement, the crypto industry had grown used to a government that had been largely receptive and supportive of cryptocurrencies in recent times. In 2022, John Glen, then Economic Secretary to the Treasury (also known as the City Minister), declared the intention of making the U.K. a world leader in crypto-asset technology. This commitment was echoed by his successors Andrew Griffith in 2023 and most recently Bim Afolami, who has urged regulators to exercise caution when enforcing regulations on the crypto industry to avoid hindering its growth. The Financial Services and Markets Bill introduced extensive regulatory powers over stablecoins under the oversight of the Financial Conduct Authority, while clarification regarding the taxation of staking was promised. With Labour currently polling at around 41%, a significant shift in power is imminent, marking the end of 14 years of Conservative leadership.

Two weeks ago, the Labour Party unveiled its manifesto with no mention of digital assets or related topics. Notably absent as well was any discussion on financial services in general. It’s unexpected that Labour has yet to formulate a stance on crypto and blockchain technology; they need to address this promptly. However, there are certain areas where Labour can make beneficial changes without investing extensive time or resources.

To complete the regulatory framework for stablecoins, the upcoming administration must enact the final legislative measures. By doing so, stablecoins will fall under regulatory oversight. Given previous commitments that this action would occur by summer’s end, it is assumed that the necessary legislation has been prepared and stands ready for approval. The new Labour government should rely on their Treasury advisors to push this legislation through.

In simpler terms, Clarification on regulatory aspects of staking. This is an important issue that the industry has been anticipating a clear answer on. Staking plays a vital role in maintaining the safety and development of blockchain networks. Therefore, it’s essential to know how this process will be regulated by financial services to ensure accuracy and compliance.

Guidance on financial promotions. The so-called FinProm rules have been effective for six months, and the territorial breadth combined with rigorous specificity is creating regulatory daisy chains across the industry, as firms with debatable relevance fall under its purview. It’s time to review the original policy intention and give the industry clarity on what is and isn’t in scope.

In simpler terms, the world of digital assets, including Web3 and crypto, is here to stay. Regulators worldwide recognize this trend and aim to keep their markets competitive by implementing thoughtful and appropriate regulations for managing these new technologies.

As a crypto investor, I’m deeply concerned about the future of the U.K.’s role as a global leader in innovation if swift and decisive action isn’t taken by the new government. Failure to establish a clear regulatory framework could result in us falling behind jurisdictions like the EU and Southeast Asia, where regulatory regimes are already in place. Once we lose our competitive edge, it may be difficult or even impossible to regain it.