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What is the UK Parliament’s view on crypto regulation?

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There is an increasing awareness amongst policymakers across the world that the crypto space requires attention. Decentralised markets have achieved a scale and a sophistication which means that proper regulation – of the kind which govern traditional financial markets – is needed. As we have covered frequently in DisruptionBanking, it is particularly important that retail investors are sufficiently protected from bad actors.

In the UK, there are a couple of Members of Parliament leading this charge. Matt Hancock is one prominent figure calling for a “liberal, progressive” approach to crypto regulation. Another is Lisa Cameron, a member of the Scottish National Party (SNP) and the MP for East Kilbride, Strathaven and Lesmahagow. She is also the Chair of the Crypto and Digital Assets All Party Parliamentary Group (APPG). This APPG is designed to provide a forum for parliamentarians, regulators, and officials across Government and the financial industry, to discuss the challenges and opportunities of the crypto sector – and how best to proceed with regards to future regulation.

Sector Support

Cameron told DisruptionBanking that “there has been fantastic interest in the APPG from the sector – we have been really blown away by the level of enthusiasm.” She believes that this demonstrates the sector welcomes the opportunity to work constructively with parliamentarians in order to create a sensible legal order. Indeed, Cameron noted the importance of “regulatory clarity, having a clear regulatory framework for the sector […] they would welcome the certainty that regulation brings.” This is contrary to the common (mis)perception of the crypto industry as a revolutionary, anarchic space that was designed for the specific purpose to evade government control.

As well as clarity, however, Cameron believed that sensible regulation would offer further benefits for crypto companies operating in the UK. “Proportionate, measured rules” could, in Cameron’s view, “really foster inward investment [in a way that] supports growth.” If Parliament were to take a lead in “championing high regulatory standards, we could ensure that the UK is one of the leading places internationally for crypto moving forward.”

This might explain why the APPG has benefited from significant amounts of cooperation from the sector so far. After all, “the majority of actors in the space are decent and want to comply with the rules – they want a healthy market.” Industry leaders have joined peers, MPs and Bank of England officials for a number of meetings that will continue throughout the year.

Educating MPs

As Matt Hancock also suggested to us, Cameron argued that many MPs are instinctively uncomfortable with the idea of decentralised finance. Inevitably, they tend only to hear from constituents who have been ripped off by some rogue company – “people come to MPs when they have a concern or a problem rather than when things have gone really well for them.” The result is that “sometimes we don’t get the most balanced picture.” Negative media coverage can further reinforce this sentiment, with the consequences that some MPs may not be approaching the issue of crypto regulation from a balanced and fair position. For this reason, Cameron believes that MPs need to “upskill” themselves and be exposed to more accurate and representative information.

One of the key aims of the APPG, therefore, is to educate MPs. This is so that they can devise future regulation “from a position of being informed and knowledgeable rather than [being influenced by] any disinformation that they may have read.” There also has to be a more constructive “partnership” between policymakers and the sector so that we can proceed in a mutually beneficial way. While the Financial Conduct Authority (FCA) is responsible for registering and licencing crypto firms, and the police are responsible for investing potential crimes such as money laundering, Cameron argued for a multi-way dialogue between the industry, policymakers, regulators, and law enforcement. It is only through such cooperation that she sees “appropriate regulatory standards” and “a safe marketplace” being fully achieved.

Cameron was also prepared to “acknowledge that perhaps we don’t have all the answers yet.” Indeed, this is “quite a new sector” and it will inevitably take time for policymakers to get to grips with it. The purpose of the APPG is not to put forward solutions straight away, but to look at all the evidence available, as well as examples of “international best practice” in order to make a “positive contribution” to the debate.

Crypto is here to stay

Cameron suggested that some more crypto-sceptic policymakers still believe either that DeFi is a fad which will soon fade away, or that it can be regulated out of existence. She believes, however, that this is naïve. “Crypto is here, consumers are using it, so we can’t really put it back in the box,” Cameron said. Even if MPs wanted to, Cameron believes “we cannot legislate to stop people engaging with crypto.”

Once this fact has been accepted – that MPs cannot (and should not) “prevent anybody from getting involved in crypto” – the only thing that lawmakers can do is ensure the conditions are right, and that the market is as safe as possible. Cameron sees the role of the APPG not as attempting to stifle the use of crypto, but as helping to develop the “correct regulatory standards” and encouraging “financial education and awareness.” Part of this involves devising “clear rules and guidance about promotion, so that crypto firms know what they can and can’t do when it comes to advertising.” It also involves informing consumers – giving them “clear guidance” – so that they know what is safe and what isn’t.

Cameron accepted that Parliament is playing catch-up. The lack of these safeguards so far has meant that “some consumers aren’t currently being protected.” In many ways, this is inevitable: regulation will always follow innovation, because you can’t regulate something that doesn’t exist yet. But the rate at which decentralised finance has evolved, and the amount of consumer money that is at stake, makes the task of devising “clear rules” all the more pressing.

Moderate measures

Cameron summed up her and the APPG’s priority as “making evidence-based and informed decisions.” The APPG plans to work with authorities such as the Bank of England, as well as fellow MPs, to allow Parliament to work out the most appropriate, moderate and robust measures that will facilitate progress. Perhaps most importantly, however, the APPG will be encouraging to Parliament to embrace the changes we are seeing in global finance, rather than attempt to resist them.

“There are a lot of people who don’t have access to traditional forms of financial services, or people who are currently excluded from finance, and we must take this into account,” Cameron said. “Digital finance is becoming the norm – younger generations are not paying in pounds out of their pocket anymore […] There’s potential and opportunity here.”

Because of this opportunity, it is important that Parliament gets this right. Given how quickly finance is changing – and how quickly other markets are evolving – it is also important that policymakers move as fast as possible. Indeed, as Cameron ended by noting, “we don’t want to rush into anything, but at the same time, we don’t want to fall behind.”

Author: Harry Clynch

#Crypto #DeFi #UKParliament #APPG #BOE #ConsumerProtection #FCA

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