UK Lords: Broader regulation is needed to govern Bitcoin and digital currencies

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Late last year, CoinGeek reported on the Financial Services and Markets Bill (FSMB), the U.K.’s attempt to empower regulators to deal with digital currencies, NFTs, and what it calls ‘crypto-assets’ in its bid to become a world-leading hub for the industry.

After its second reading, members of the British House of Lords have voiced concerns that the bill does not go far enough and that a whole new regulatory approach will be required to deal with the industry in a way that fosters innovation while stamping out crime.

The British government will publish a broad report on digital currency regulation in the coming weeks.

What will the FSMB bill do, and why are Lords concerned?

The Financial Services and Markets Bill will empower regulators, such as a Financial Conduct Authority (FCA), as they attempt to supervise ‘crypto assets.’ This term is one the U.K. government has consistently used in the last few years to describe all manner of tokens, including digital currencies, NFTs, fungible tokens, DeFi tokens, and others.

The bill will also regulate so-called payments stablecoins and will set clear rules and restrictions on what is permissible in advertising digital currencies and other tokens to U.K. citizens.

During the second reading of the bill, which is an opportunity for lawmakers to voice concerns and raise questions, some members expressed that it needs to go further and a whole new regulatory approach will be required. Jonathan Hill, a member of the upper chamber, challenges if FCA is ready for the task:

“Managing emerging innovation opportunities while preventing abuse is going to pose some really serious capacity and structural challenges to the regulator. Candidly, I have my doubts if the FCA is really ready for this.”

The U.K. has been consistently ahead of the curve in regulating digital currencies, as it was with iGaming when it emerged, even going so far as to propose a new category of private property to ensure rights.

Digital pound won’t track retail users

In related news, a consultation paper on the U.K.’s central bank digital currencies (CBDC) is due in the coming weeks, and a treasury minister has clarified that it won’t track retail transactions. Instead, it will give the government visibility into banks.

Plenty of concern has been expressed about the nature of CBDC and what they mean for financial sovereignty, individual rights, and privacy. This statement addressed some of those concerns, dismissing the idea that the CBDC is an attempt to create a surveillance state.

Andrew Griffith, the Economic Secretary to the Treasury, said that if the CBDC goes ahead, it would be built on a platform that won’t allow the government access to individual transaction data. The only exceptions would be in cases where suspected money laundering or fraud had occurred.

The UK continues to lead the way in digital currency regulation

As the era of regulation approaches and governments move to stamp out crime and tame the Wild West era of the digital currency industry, the U.K. continues to demonstrate that it is ahead of the pack.

Some members of the government, including Prime Minister Rishi Sunak, have realized the opportunity the industry presents, and there has been a collective decision to grab it with both hands.

The regulations proposed so far, and the statements made regarding them, show that those tasked with moving all of this forward understand the need to regulate the industry without choking innovation. As it did with its banking and financial services sectors, the U.K. has a real chance to become a world leader in the space if it continues with this approach.

Is it a coincidence that Bitcoin’s inventor happened to make London his home? Time will tell, but right now, nChain’s decision to base itself in London looks like a masterstroke.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

Watch: Tokenizing Assets & Securities on Blockchain