Global lessons and challenges for the UK in regulating crypto-assets
The UK already boasts a globally leading, competitive financial services centre with particular strengths in fintech, FX, capital markets, insurance and professional services. Leveraging this strong foundation, the UK can significantly benefit from the integration of crypto-assets and blockchain technologies.
Blockchain technology enables direct transactions between parties, making payments cheaper and faster by reducing transaction fees and processing times. Blockchain also democratises access to financial services by providing secure platforms for lending, borrowing, and investing, and its decentralised and immutable ledger system reduces the need for manual record-keeping and reconciliation. This leads to increased transparency and minimises errors and fraud. The substantial industry appetite to experiment with this crypto-asset and blockchain technology is evident.
Similar boosts are not yet lost to the UK, but it must move faster with its rulebook. The UK can leverage a valuable ‘second mover advantageʼ by implementing a proportionate and forward-looking regime that learns lessons from other jurisdictions.
Recommendations:
- The Government and regulators must act at pace to develop a regulatory framework for crypto-assets that drives investment and growth. This is crucial for the UK to seize the opportunities offered to early movers and advocates of digital assets.
- The UK must seek to improve on other jurisdictionsʼ approaches to enhance its role as a globally competitive financial centre. The strategy should also consider interoperability with global regulatory frameworks, so firms do not face conflicting requirements and unnecessary burdens.
Stablecoins as a new form of money
Stablecoins, a class of crypto-assets pegged to stable assets such as fiat currencies, are a critical part of the digital financial ecosystem. As well as offering stability, stablecoins are the only form of money that is fully transferable on blockchains, and therefore have a crucial enabling role to play in digital asset markets. As acknowledged by the (then) Economic Secretary, they are at present the only meaningful proposition for ‘atomic settlement,’ a process whereby payment for a security and its transfer of ownership can occur simultaneously. These characteristics give stablecoins a crucial enabling role in digital asset markets, and make them a promising new form of money for digital financial systems.
Banks, asset managers and payment processers are looking to incorporate stablecoins into their systems to take advantage of their benefits. Major institutions such as Bank of America, Fidelity and Paypal are either planning to or have launched a stablecoin offering. However, the lack of regulatory clarity in the UK is a blocker as large industry players seek regulatory certainty before investing in implementation.
Recommendation: The UK risks losing out by delaying its stablecoin regulation. The UKʼs regulation should allow various stablecoins to circulate without local issuance requirements to solidify its role as an international financial centre and ensure a level playing field with other forms of money.
How to position the UK as a global leader in tokenisation
Tokenisation uses blockchain and distributed ledger technology DLT) to digitally represent assets like stocks, bonds, real estate, and commodities. This transformation enhances how assets are traded, settled, custodied, and verified, which boosts their liquidity, transparency and efficiency. According to new research, tokenised assets are expected to reach $19 trillion in value by 2033.
Countries that are at the forefront of this technology have the chance to lead this change. The UK is particularly well-positioned to lead, thanks to its respected legal system, top universities, and the global use of English in business and finance. Furthermore, the UK financial services industry is already making progress on tokenisation. The Governmentʼs Asset Management Taskforce has been proactive in exploring the transformative potential of tokenisation, using the UKʼs expertise as the worldʼs second largest asset management sector.
Recommendation: The UK Government and regulators have made a promising start in promoting tokenisation. However, a bold and ambitious approach is essential to tackle the legal, regulatory and tax barriers faced by industry and ensure the UKʼs positioning as a global leader on tokenisation.
Close
The UK stands at a pivotal moment for the crypto-assets sector. It is vital that policymakers harness industry expertise to create a regulatory environment that will transform the opportunities outlined in this paper into tangible benefits and position the UK as a leader in crypto-assets. The UK can draw insights from other jurisdictions to shape its regulatory framework, but it should also not be opposed to deviating from existing regimes. By working with industry, it can create a tailored and outcomes-driven approach, rather than “one size fits all,ˮ achieving the best possible outcomes for the UK to maintain its global leadership in financial services and innovation.
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