26 November 2024

Taken from the published LinkedIn pulse article.

Last week, on 21st November, the UK Government’s Economic Secretary to the Treasury and City Minister, Tulip Siddiq MP, delivered a keynote speech at the Tokenisation Summit 2024 outlining the Government’s approach to digital asset regulation.

This is a substantial moment for the future of digital asset regulation in the UK as the first public indication of the new(ish) Labour Government’s stance on digital assets. Following the UK general election on July 4th 2024, there has been marked uncertainty as to whether Labour would take a similar, relatively favourable stance on digital assets to its Conservative predecessor with its often-stated desire to see the UK become a global hub for the digital assets industry.

Since the election in July, it had been unclear whether Labour would pursue this same stance. Before Thursday’s announcement, Labour in opposition could be best described as enigmatic (or, at worst, apathetic) towards the digital asset industry, with few official public announcements on the subject. Other than the Labour Party’s ‘Financing Growth: Labour's Plan for Financial Services’ published in January 2024 while still in opposition, which spoke of “embracing securities tokenisation” and endorsed the use of regulatory sandboxes, there was very little noise from Labour officials as to how they would approach the sector if in Government.

In this context, the announcement by the Economic Secretary to the Treasury, whilst lacking substantial detail, did provide an encouraging stance of the Government's intention to facilitate the industry’s growth through regulatory clarity. A key point of the speech was the government’s intention to develop a single overarching regime for digital assets. This is a break in policy from the previous government, which favoured prioritising areas of digital asset legislation and had stated its goal prior to the election to move ahead only with stablecoin and staking legislation due to a perceived lack of legislative time for any larger, more inclusive digital asset legislation at that time.

On Thursday, the Government confirmed that its overarching digital asset regulatory framework would include stablecoins and staking. The Government stated that stablecoins would no longer be considered under the UK’s existing payment services regulation, which is deemed inappropriate based on stablecoin use cases. In a positive move for the industry, the government also stated that staking services would avoid being considered a collective investment scheme.

Commentators have suggested that the return of Donald Trump as U.S. President in January 2025 following the country’s election in November may have played a role in developing the new UK Government’s pro-digital asset rhetoric. Whilst it is highly unlikely that the U.S. election would have dramatically changed the government’s stance on the issue, it is a reasonable assertion to say that the U.S. election and the much-vaunted pro-digital asset business environment anticipated in the U.S. following Trump’s electoral win may have added a sense of agency and impetus to the UK Government to be clearer on its position regarding digital assets.

Even under the previous, reasonably pro-digital asset Government, it was frequently commented that the gap between rhetoric and action was too wide and that the pace of regulation in the UK was too slow to allow it to keep up with other nations hoping to position themselves as leading spaces for digital assets. The EU, for instance, will see its Markets in Crypto-Assets (MiCA) regulation fully enacted by the end of the year, providing regulatory clarity over a wide array of digital asset use cases and activities.

As such, it is welcome that the government has committed to bringing forward digital asset regulation in early 2025, and from what we know of the government’s approach to staking and stablecoins legislation, it has laid out an approach that, at least at this stage, will be welcomed by the industry. However, as seen with the slow pace of tangible progress by the last government, actions speak louder than words. It is potentially concerning that the Government has decided to provide one single overarching legislative regime on the basis that “doing everything in a single phase is simpler, and it just makes more sense”, as this is often not the case in lawmaking. As was seen with the EU’s MiCA, an all-encompassing approach to legislating takes substantial time to pass due to the amount of scrutiny required. MiCA was initially proposed to the EU Parliament in 2020 and wasn’t passed by the Parliament until 2022. Regulation on stablecoins didn’t take effect until June 2024, and rules for ‘crypto asset service providers’ won’t be enacted until December this year. In this context, and the time it will take to draft a broad regulatory framework to oversee digital assets in the UK, it would not be unsurprising if the deadline of early 2025 didn’t materialise.

Further, it is worth noting that with regard to stablecoins and staking, legislation on these two areas was previously expected to be passed by the previous Conservative government in the summer before the announcement of the General Election. Now, this has been pushed back to the new year. Potentially, the decision to move forward with a full regime for digital assets will see this process take longer, even when it can be assumed that the legislative groundwork for these two activities already exists (if the statements of the prior administration are taken at face value). The previous Conservative government ran out of time to move forward with substantive legislation on digital assets. The current Labour Government, not expecting another General Election until 2029, doesn’t have this problem, which may explain its decision to take the slower route of legislating for ‘all things slowly’ rather than ‘some things quickly’. However, just because the Government may not feel a time pressure to pass digital asset legislation doesn’t mean that there isn’t one.

Whether it likes it or not, the UK is in a highly competitive global race to bring forward progressive and fair regulation that removes uncertainty and encourages digital asset companies to call the UK home. The previous Government, whilst ostensibly and rhetorically supportive of the industry, never fully appreciated this. In seeing the implementation of MiCA, in combination with the election in the U.S. and the sudden perceived attractiveness of the U.S. as a digital asset hub, it can be hoped that officials in the UK Government are genuinely feeling the pressure to move forward with digital asset regulation, or risk falling further behind.

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