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Crypto Currencies

Volume 819: debated on Monday 28 February 2022


Asked by

To ask Her Majesty’s Government what assessment they have made of the use of crypto currencies in the United Kingdom.

My Lords, certain crypto assets offering new ways to transact and invest are part of a trend of rapid innovation in financial technology. However, these developments also present new challenges and risks, including risks to consumers and the financial system. In 2018 the Government established a Cryptoassets Taskforce, which is responsible for assessing developments in the crypto asset market. Her Majesty’s Treasury and UK authorities have taken a series of actions to support innovation while mitigating risks to stability, market integrity and consumers.

I am grateful to my noble friend. While blockchain technology has much to commend it, with the UK being a world leader in financial technology, should not cryptocurrencies be subject to the same rules as other currencies? While many law-abiding citizens may have modest holdings of bitcoin, have not cryptocurrencies greatly facilitated the operations of blackmailers, drug dealers, fraudsters, tax evaders and terrorists, with crypto-based crime reaching an estimated $14 billion last year, as against nearly $8 billion the year before? What plans does my noble friend have to tame the beast?

My Lords, we are taking action to manage the most pressing risks from crypto assets. That includes including crypto assets in the most robust standards for money laundering and countering terrorist financing, and moving to regulate crypto asset promotions to ensure that they are held to high standards for fairness, clarity and accuracy.

My Lords, crypto assets are used extensively for money laundering, as the Minister implied and the noble Lord, Lord Young, made clear. Since January 2020, crypto asset businesses in this country have had to comply with money laundering regulations and to be registered with the Financial Conduct Authority. Helpfully, the FCA has a list of approximately 30 businesses that are compliant and registered, but for some bizarre reason it also has a list of 200 or more companies that are non-compliant and not registered. Whatever the original reason for that, it seems to me to be a directory for kleptocrats, drug dealers and criminals to access some business that will not comply with the regulations. What are the Government doing about it, and about these businesses?

My Lords, if I understand the noble Lord correctly, he may be referring to the transition arrangements that were put in place following the inclusion of crypto assets into the anti-money laundering regime. That transition regime is due to expire on 31 March 2022, when all companies will need to be registered.

My Lords, given the worrying numbers of young people ignorantly speculating in cryptocurrencies, is there not now a compelling case to substantially increase the quality and quantity of financial education in our schools and colleges?

My Lords, financial education is something that the Department for Education looks at and, I believe, is supportive of. The noble Lord is right that more and more people are getting involved in crypto assets. That is why the Government took the decision to bring crypto assets into the financial promotions regime. One of the proposals in there is to limit the amount that any individual can hold in crypto assets.

My Lords, I declare my interests as set out in the register as co-chair of the All-Party Parliamentary Corporate Responsibility Group, which last week heard evidence that the blockchain technology used to power cryptocurrencies is increasingly being used to ensure both security and transparency in the supply chain. What steps are the Government taking to encourage research and investment in blockchain technology, which would mean that the UK could be a world leader in this area?

The noble Baroness is right that we should not forget the opportunities that the underlying technology for crypto assets present for businesses in the UK. The Government are very focused on that; for example, in financial services, we have announced a financial market infrastructure sandbox to support technological innovation in financial markets using that technology. That is something we want to learn from and build on.

My Lords, the financial sanctions on those supporting Putin may well lead to a flight to crypto among those trying to squirrel away their assets. Can my noble friend the Minister please reassure us that the regulations due shortly that will oversee these sanctions will have in them provisions for crypto?

Crypto assets are classed as funds or economic resources for the purposes of financial sanctions restrictions. Circumvention of financial sanctions by any means, including use of crypto assets, is a criminal offence.

My Lords, the FCA advice to customers, last updated on 18 June 2021, says:

“Before you invest in cryptoassets you should be aware of the following … cryptoassets are considered very high risk, speculative investments … if you buy these types of cryptoassets, you are unlikely to have access to the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS) if something goes wrong … if you invest in cryptoassets, you should be prepared to lose all your money”.

It is quite clear that this whole area of activity has the potential to go wrong. In going wrong, it could be very big—indeed, it could be so big as to impact on financial services in a systemic way. Which Government Minister is responsible for the monitoring and development of crypto assets tracking? What resources does that person have, and when can we expect appropriate reports and legislative proposals?

My Lords, that work would fall to the Cryptoassets Taskforce, which was set up by the Treasury, the Bank of England and the Financial Conduct Authority to look at the regulation of crypto assets as well as, for example, their implications for financial stability. Day to day it is the Economic Secretary to the Treasury who takes responsibility for these areas.

My Lords, as soon as Russia invaded Ukraine, the Ukrainian Government announced that they could receive donations in bitcoin, Ether and Tether to help with their efforts, and raised over $10 million in the first 24 hours; it is a much larger sum now. So will the Government be slightly careful in what they do around closing down the crypto area? The Government of Ukraine have asked that all major DeFi—decentralised finance—exchanges are blocked to Russian-based transactions; something that is rather easy to evade. Will the Government support those exchanges in trying to put in place those blocks?

My Lords, I will take the noble Baroness’s latter point back to the Treasury. On her first point, she is absolutely right that, while we take steps to regulate the use of these assets, we also need to avoid unintended consequences or the stifling of innovation.

My Lords, will my noble friend help the House understand the advantages of cryptocurrencies? I confess that I see plenty of disadvantages; this does not seem to be about investing but pure gambling, and the technology is based on anonymity and untraceability, unlike the banking sector. The environmental damage associated with the so-called mining of bitcoins itself undermines some of our COP 26 objectives. I would very much welcome the understanding that the Government have of why this is in any way positive rather than wholly negative for the economy and society.

It is probably worth trying to distinguish between different forms of crypto assets: unbacked crypto assets such as bitcoin can be highly volatile and speculative, and are therefore being regulated by the Financial Conduct Authority in terms of promotions; stablecoins tied to a reference asset could be used as a widespread means of payment and potentially deliver improvements in cross-border transactions; and the underlying blockchain technology could have a number of benefits, improving the efficiency of the settlement processes and reporting and enabling greater automation. So, it really is a question of a having a slightly more nuanced view of these different assets and regulating them appropriately.

In one part of the United Kingdom, the Scottish National Party cannot make up its mind even on the existing currency and—if it were, unfortunately, to move towards independence—whether to accept the pound, move to the euro or go back to the groat. Is that not an extra reason why we should all be saying to Ms Sturgeon and her mob that they should concentrate on delivering services in the devolved areas and forget about their independence campaign?

My Lords, whenever the noble Lord stands up, I either strongly agree or strongly disagree with him; in this case, I strongly agree.