UK Parliament group recommends ‘pragmatic approach’ to crypto regulation

All-Party Parliamentary Group on FinTech puts forward suggestion for set of principles or code of conduct to act as standards in absence of crypto regulation.

A UK group responsible for raising FinTech issues in Parliament has suggested the need for a ‘pragmatic approach’ to cryptocurrency, involving a set of principles recognised as standard.

The All-Party Parliamentary Group (APPG) on FinTech was established to raise awareness in Parliament of the growing importance of FinTech to the UK economy and held a meeting in early July on cryptocurrencies.

During the meeting, one MP described the UK as being at a ‘tipping point’ and said the industry needs to look at self-regulation as quickly as possible, so the Financial Conduct Authority (FCA) doesn’t inadvertently slow things down.

Adam Afriyie, Member of Parliament for Windsor, concluded the meeting by saying there is a need for a pragmatic approach, which is not necessarily enshrined in law.

This is in response to a lack of regulations for cryptocurrency which has resulted from an obscurity as to whether the assets should be classes as securities or not. Regulatory issues continue to hold back institutional investors from the cryptocurrency markets, which in turn is stunting their evolution.

“This would involve a set of principles or a code of conduct that is recognised as a standard,” the APPG FinTech minutes read. “There may even be a case for authorisation of a certain type of organisation: e.g. FCA-recognised criteria or licenses.”

According to Hirander Misra, CEO of GMEX, if the UK gets this right then its approach to FinTech regulation could negate any negative economic impacts of Brexit with net positive economic growth.

“Whilst the FCA has the Sandbox regime, it is very broad and really only captures early stage ventures,” said Misra. “This is important but some more specialised regulation and licenses are required. For example, what would really help position the UK as the major digital trading and asset servicing hub with proper regulation encompassing the required levels of KYC and AML is the introduction of new Financial Markets Infrastructure (FMI) licenses for Digital Marketplaces and Digital Custodians.”

“This in tandem with Digital Banking licenses and proposed conformance standards across all of these for KYC/AML would put Britain at the forefront of global digital economic development.”

Some examples of self-regulation suggested at the meeting were the Global FX Code and the crowdfunding codes of conduct. The minutes explained that these standards made it easier for regulators to see what the standard will be.

“It is feasible to take existing legislation on financial services and apply it in this area,” the minutes said.

The approach would mirror that of Switzerland, which has been dubbed as ‘crypto-friendly’. Not only has it become an initial coin offering hub, but also paved the way for SIX Exchange to plan a fully integrated trading, settlement and custody infrastructure for digital assets, set to launch in 2019.

The roundtable discussion held by APPG was attended by some of the leading players in the cryptocurrency world looking to set up infrastructure for institutional investors, including Obi Nwosu, CEO of Coinfloor, Jeremy Millar, chief of staff at ConsenSys and Graham Rodford, CEO of Archax.

“For the regulators in leading financial centres to introduce legislation at the same pace as smaller, arguably less credible, jurisdictions, is understandably challenging,” said Matthew Pollard, one of the founders of Archax, alongside Rodford.

“Initiatives like the FCA sandbox are crucial in providing a safe space for firms to build out innovative offerings while working hand in hand with the regulator. Inevitably firms operating at the cutting edge run the risk of testing the regulatory envelope, so a broad authorisation for these kinds of organisations that lays out common sense operating principles would provide a high level stamp that would inform customers and stakeholders that this firm is holding itself to a standard.”