Regulating for Change: What do recent UK policy announcements mean for digital assets and blockchain?

On Monday 17 March, the Prime Minister penned a piece where he promised to ‘unleash the animal spirits of the private sector’ by forcing business facing regulators to place more of an emphasis on growth and investment and pledge to reduce the baseline cost of doing business by 25% by the end of this Parliament. Meanwhile, the Chancellor held another meeting with regulators to unveil an action plan to cut red tape as part of a plan for change to kickstart economic growth. As part of this, there are 60 specific measures from regulators which are designed to make it easier to do business in the UK as well as a plan to set up a bespoke ‘concierge service’ to help international financial services firms get to grips with UK regulations.

What does this mean for Digital Assets and Blockchain?

This is an exciting opportunity for digital assets and blockchain firms. With the Prime Minister and the Chancellor both looking to boost the economy and turning towards the private sector to help deliver this, there is a real opportunity for firms to help shape the direction of UK policy and present digital assets and blockchain as the means of achieving growth.

The first thing of note is the key regulator pledges that are outlined in Annex A of the policy paper on ‘new approach to ensure regulators and regulation support growth’. Amongst the 60 specific measures that have been agreed with regulators over the past few months, there is one specific mention of digital assets which is that the FCA will extend pre-application support to all wholesale payments, and crypto firms. There are two other related measures which are 1) the pledge from the FCA to provide 50% more dedicated supervisors to early and high growth firms and 2) to provide a dedicated case officer to every firm within the FCA’s regulatory sandbox.

This is does not come as too much of a surprise given the content in the letter from the Chief Executive of the FCA earlier in the year. However, what is of note is that in that letter, despite all the work being set out in the cryptoasset roadmap, the only reference other reference to digital assets and blockchain was through the plans to progress the digital securities sandbox and a roadmap for digital assets starting in asset management.

There are a couple of opportunities here. First of all, in the context of the upcoming consultation and discussion papers as part of the cryptoasset roadmap. With the pressure put on the regulators to be growth focussed, it will no doubt play a role in the approach that is taken to setting out the incoming framework. Here is the opportunity to flag potential issues with any restrictive requirements that are being proposed or perhaps put forward innovative, left-field solutions. Secondly, there may also be an opportunity to highlight the role that digital assets play in the future of the UK economy and put pressure to alleviate some of the regulatory barriers. To that end, as well as looking at upcoming initiatives, there is also the opportunity to revisit some existing regulatory requirements and processes that have been imposing significant and perhaps unjustified burdens for industry. For example, industry still struggles with how burdensome the AML registration regime is or how restrictive the financial promotions regime is – this overhaul could be the opportunity to address concerns such as these.

One thing to caution however, is that the industry is prone to media scrutiny and therefore it is imperative that the conversation is lead in a manner that promotes long-term trust and development of the sector. This means keeping a particular eye on and cautioning against unforeseen consequences that could knock the industry back.

A final point of interest is that it will not have been by coincidence that the Chancellor also announced details of the launch of the procurement process for the pilot Digital Gilt Instrument issuance on Tuesday 18 March. This has been much anticipated following the announcement at Mansion House in November last year and it marks a significant step in the Government working with industry to achieve a successful issuance. A core driver behind the issuance is to see how it can catalyse the development of UK based DLT infrastructure and the adoption of DLT across UK financial markets, highlighting that the UK sees this technology in its future.

The wheels are certainly moving, and these developments are a good opportunity to start setting out where changes need to be had. As part of our Regulating for Change programme, we are bringing together our sectoral, subject matter and public law and policy expertise, to help clients advocate powerfully in Whitehall, Westminster and across the regulatory community, for credible, specific regulatory and legislative changes. Do reach out to the Digital Assets and Blockchain Team if you’d like to discuss any of this further.

Authored by Lavan Thasarathakumar.