Cryptoassets: Regulation

I beg to move,

That this House has considered the Government’s regulatory approach to crypto-assets and currencies.

It is good to see you at least in the Chair, Ms Rees, and it is good finally to be here to talk about a subject that has produced an awful lot of heat and often little light in this place—that of the regulations on cryptocurrencies. I hope you will forgive me if I go on at some length about the issues that I think we have to debate in Parliament today.

We should start with a few pieces of accountability as, of course, we are not quite in the post-trust era. I am the chair of the all-party parliamentary group on blockchain, as well as being a vice-chair of the crypto and digital assets all-party parliamentary group. I see the chair of that all-party group, my hon. Friend the Member for East Kilbride, Strathaven and Lesmahagow (Dr Cameron), in their place today. The latter group is a relatively new kid on the block as it was established just last year, whereas the all-party parliamentary group on blockchain has been around for some time.

Let me come to the first of many aspects of what we can see as a sort of cognitive dissonance around the idea of crypto. Despite the fact that we often talk about crypto as a new kid on the block, it is now a pretty widely accepted concept, even if a poorly understood one, and I am glad to see that we have interest in today’s debate from across the Chamber—at least, I think we have interest from across the Chamber. I hope we will hear a lot of interesting ideas about what the future holds, and I will add a couple of suggestions of my own towards the end of my speech. Given that this is the first debate in the House on the subject, we require something of a tour d’horizon of the landscape as it lies today before we move on to the challenges and some opportunities that recent developments provide for the future of crypto.

Before doing so, however, let me place on the record my gratitude to the secretariat of the all-party parliamentary group on blockchain, led by Professor Birgitte Andersen of the Big Innovation Centre. Her leadership in creating space within the all-party parliamentary group to allow many of the big issues of the day to be debated over the past few years has been vital, and the work put in by her researcher, George Farrer—and indeed by his predecessor, Fernando Santiago—to ensure that the topics remain current and relevant has been much appreciated.

Through the forum that the all-party parliamentary group provides, I was able to meet Dr Robert Herian, now of the University of Essex, and I am much indebted to the work he has done, particularly in his 2018 book “Regulating Blockchain”, which will provide the basis of some of the suggestions I make today. If Members are interested in the subject, they should buy a copy of the book. I am sure Dr Herian will be glad of the plug.

For a movement that is often described as a cult, it is apt that crypto even has its own origin story: it was invented on 31 October 2008 with the release of Satoshi Nakamoto’s “Bitcoin Manifesto”. However, as with much of the myth and legend around the subject, it is unclear whether Nakamoto is a single person, or indeed whether much of the work was singly their own, given that theoretical work had been done on different concepts of blockchains, going back to the early 1980s.

What Nakamoto’s manifesto did, however, was bring the technology to wider prominence. There was a ready pool of adherents in the immediate aftermath of the 2008 financial crisis, who understood the importance of decentralised finance and the potential to move beyond financial institutions as they have been conceived hitherto. Progress was slow but steady at first, but it picked up in the middle of the last decade with the release of books such as Alex and Don Tapscott’s “Blockchain Revolution” in 2016, which was my gateway into the possibilities of the technology. That was followed by exponential growth over the past few years, with the rocketing in value of not only Bitcoin but other cryptocurrencies such as Ethereum and the range of memecoins, which made up so many of the initial coin offerings that we saw around 2018-19.

All the way through, many have predicted a crash, but the pandemic lockdown saw crypto reach unforeseen heights, whether it was furlough cheques or the lack of faith in existing investment that drove the trend. The high watermark seems to have been in November 2021, when the value of one Bitcoin reached about $68,000. The ultimate symbol of the bubble may well have been the adverts during the American Super Bowl half-time break, with Hollywood A-listers such as Matt Damon and Larry David imploring us to buy crypto.

The Super Bowl ads were not just good at showing us what the bubble looked like; they probably go down as one of the supreme examples of what crypto’s contribution to our discourse has been: its unique culture. One had comedian Larry David decrying seminal innovations throughout history—the wheel, the toilet, the light bulb—before doing the same with crypto. “Don’t be like Larry,” the ad exhorted the watching millions, “Don’t miss out on the next big thing.”

FOMO, or fear or missing out—there are plenty of folk in this place who have that—has certainly motivated many to get into crypto, but so have a range of other acronyms that appear on the profusion of online crypto culture forums. I hate acronyms, as many of my colleagues know, but the one that struck me the most is HFSP—have fun staying poor. It is a motto that manages to encapsulate so much: the unscrupulous nature of so much of this mainly unregulated space; the background of so many crypto investors, cut off from access to the traditional markets; and the pervading millennial jokey humour.

I come to the first very important point at which more Government attention needs to be paid to crypto. The market has been allowed to proliferate, drawing in uninitiated small-scale investors, who begin crypto trading because they see only the upside: the market that lies beyond outright scams such as Squid coin or OneCoin, in which investments of dubious provenance have been hyped and pumped, attracting the hard-earned savings of so many people.

I represent one of the poorest constituencies in the country, West Dunbartonshire. I grew up in that community in the ’70s and ’80s and lived through what I believe was its ruination by Thatcherism. It is still a resilient community, but too many feel marginalised and remote even from our neighbour, the city of Glasgow. Many of my constituents are the type of people who have been caught up in the dubious practices around crypto, and I wish more could be done about it, especially as we head into the cost of living crisis. We need to remember that it is often those who feel they have nothing to lose who are the targets of scams.

I thank my hon. Friend for bringing this extremely important debate to Westminster Hall. Given all that he is saying, does he agree that consumer protection needs to be at the heart of a regulatory framework? We should highlight some of the good examples of innovative businesses, including in Scotland, such as Zumo in north Edinburgh and Scotcoin in north Glasgow, which are creating jobs in the industry.

I do not disagree, but I will talk later about the reality of the existing regulation and how we should lead best practice.

It is important that regulation is able to make a clear delineation of where the legitimate business exists and outright scam cannot. Despite the halving of the value of Bitcoin since its peak in November, it remains at a price much higher than it held a few years ago. Although many will argue over the inherent value of crypto, the market remains remarkably buoyant, despite all that has happened.

Many of the challenges begin with the merest definitions involved in the whole business. As I said, I hate acronyms. All the DLTs, NFTs and CBDCs are confusing enough before we even get to the question of what crypto actually is. Is it an asset? Is it a technology? Is it an idea?

Another enduring problem of crypto, encapsulated in that Larry David advert, is its novelty: the idea that we have a genuinely world-changing thing before us. That idea falls apart immediately as it comes into contact with the real world. As an asset class, it has proven to be resilient neither to inflation nor to external shocks, never mind the fact that conventional and centrally regulated currencies have continued to attract a far larger interest as a holder of value in straitened economic times.

It has been difficult to keep up with the pretence of some of the more outlandish claims about the technology’s potential, as they struggle with the evidence of the past few years. International bank transfers, for example, are still cheaper, when taking into account the need to convert crypto into fiat currency. There remains a massive legitimacy problem given that the post-truth aspects of blockchain technology struggle when put beside existing institutions.

Even the idea of a decentralised and therefore more equitable structure has struggled against the demonstrable fact that so many cryptoassets remain in the hands of so-called whales—the few at the top who managed to get their timing right or to be there when the currency started. Far from being a novelty, the lived experience of the crypto bubble has reinforced the fact that there truly is nothing new under the sun. While so much of it remains a new arrangement of an old song, we hear riffs that echo debates that are being had outwith the crypto bubble; debates that have resonance in the fields of economics, sociology or computer science.

I intend to start the winding-up speeches at about 10.25 am, so if Back Benchers are kind to each other, there is no need to put a time limit on speeches.

I thank the hon. Member for West Dunbartonshire (Martin Docherty-Hughes) for bringing this important debate to the House, and for securing the first ever debate on crypto in the House of Commons—it is a pleasure to speak in it.

Before I start, I thank the Economic Secretary to the Treasury as well. He and I served on the Business, Energy and Industrial Strategy Committee, and he has done an amazing job over the last two months as Minister. I hope that, in the ongoing reshuffle, he is rewarded for his valiant efforts over the summer holidays.

As mentioned, today’s debate comes at a time of great change, both in Westminster and in finance. The latest game-changing financial assets continue their exponential growth. Crypto—be it NFTs, CBDCs, stablecoins, currencies like Bitcoin or Tether, or the blockchain technology that underpins it all—represents a massive opportunity for British businesses and British investors, and we cannot simply sit back as the next financial revolution comes our way.

However, there is an issue: crypto is, by its very nature, a decentralised platform, with no ties to any particular economy or region. Britain is already world renowned as the beating heart of finance, banking and markets, so it is only natural for crypto to similarly look to Britain as its home. Equally, Britain should welcome the investment and opportunities of crypto. One of the major advantages of welcoming this decentralised platform is the benefits it will bring to the whole UK—not just London and the south-east. Cryptocurrencies can be bought, sold and mined from anywhere with an internet connection—something that the last Government worked so hard to roll out across the UK, and which our new Prime Minister reaffirmed in her commitment to us all yesterday.

Crypto really is an opportunity for everyone, from Truro to Thurcroft and Rother Valley, and all the way up to Scotland and Northern Ireland. If we first fix the problems with education and regulation, I believe we will have a thriving industry here in the UK.

The hon. Gentleman is making an excellent speech. However, does he agree that there are concerns regarding the slowness to register companies in the UK, and issues with registration linked with the FCA at the current time, which are seeing some companies who want to be based in the UK now moving to Switzerland, France and other jurisdictions?

I thank the hon. Member for her intervention and for all the hard work she is doing on this subject. She is right: we need to get these business regulated more quickly. We cannot rest on our laurels; we need to get things going, although that applies to all business, whether crypto or not. The UK needs to encourage more businesses to establish themselves more quickly, and we should have the regulations in place to make the UK accessible.

This new Government must look at increasing the level of public education around cryptocurrencies. The most common crypto-related Google search query is, “What is cryptocurrency?” That is nearly five times more common than any other. The public—from the schoolyard to the retirement home—need to be educated about the risks and rewards of this new financial asset. As with all new technology or financial tools, there clearly are risks. According to Action Fraud, nearly £150 million was scammed and stolen through crypto-related fraud last year. Educating people is the only way to ensure sensible decisions.

That being said, there are significant rewards to be gained from crypto, including instant free transactions, which will help businesses deal internationally. Meanwhile Britons will be able to transact in new ways that were previously impossible: they will be able to pay their energy bills per unit used, have their hourly wages paid on the hour or have increased privacy when paying for goods and services. Britons must be shown that the benefits are there if they approach crypto sensibly, but they must also know the risks.

That being said, given that crypto ownership is already on the rise, we cannot rely on education alone. The estimates of how many Britons own some form of cryptoassets range from 5% up to 20%, with that number clearly increasing year on year. As well as educating the public, we must rethink the regulator’s approach to cryptocurrencies. As I mentioned, there are serious risks involved in investing in crypto, even with the so-called stablecoins, as we saw with the rapid decline of Terra earlier this year. However, the current system serves only to suppress British businesses, without offering enough protection to customers and consumers.

Does the hon. Gentleman not accept, as I said, that fraud is fraud, and that if fraud is being done, it needs to be dealt with by the appropriate authorities? It is up to the Government to make sure they actually clamp down through existing legislation.

I agree that fraud is fraud, and that we must clamp down on it. We already have some regulation, but we are also in a new world. We need better and tighter regulation to deal with the issues that are coming forward. We should make sure that this Government pursue every single penny of fraud so that people get their money back.

Since the introduction of the FCA’s list of approved crypto firms, over 80% of applicants to join the list have not been accepted, and those firms were forced to shut down or move abroad. The FCA has worked quickly and effectively to install some form of regulation to ensure that the most important anti-money laundering and counter-terrorist financing checks are in place. The issue is that our system, and indeed our economy, has not yet caught up. The very nature of cryptocurrency necessitates that it can be securely used by anyone, anywhere, making it hard to successfully pass “know your customer” checks. Instead of relying on antiquated classifications, the Government must create new regulations for this ever-growing method of transactions, to nurture British businesses while protecting consumers and the public. The final proof of the ineffectiveness of current regulation and the need for action now is that 250 businesses are not on the approved crypto business list but still carry on crypto-related activities, whereas the list of approved, regulated firms has just 37 entities.

We have talked about the regulation of cryptocurrency, but I want to touch on one last point: the energy consumption. We need to look at not just financial regulations but, potentially, energy usage regulations. To take just one of the most popular cryptocurrencies, Bitcoin, according to the Bitcoin energy consumption index, the total Bitcoin carbon footprint last year was 71.73 million tonnes of CO₂—the same as Greece. Bitcoin also uses the same amount of electrical energy as Norway. We are in an energy crisis across the world, and we must look at whether that is a good use of energy. If crypto is using so much energy, should there be regulation to ensure that it is mined or used using renewable sources? As we saw last year, China uses coal-fired power stations to help its crypto industry. We need to put in place regulations to make sure that our crypto is highly regulated not only financially, but so that it operates in a green and efficient way. There is no point going to a low-carbon future if we are undermining our own growth by having this energy-intensive industry.

It is a pleasure to follow the hon. Member for Rother Valley (Alexander Stafford), and I thank him for his contribution. I particularly thank the hon. Member for West Dunbartonshire (Martin Docherty-Hughes) for raising this issue. He put forward a detailed but succinct presentation, and his knowledge of the subject is impressive. I thank him for sharing it in such a way that our understanding inside and outside the Chamber is a lot better.

As everyone will know, I am not great with technology. To be honest, I like to be able to feel my money in my inside pocket and to know what is in my wallet and in the bank, so crypto is not something that I will ever venture into, but there are a great many who do. I am aware that this is an evolving topic and has a lot of popularity, especially among young people, so it is great to be here to discuss how we can help people go about these things in the right way and, more importantly, safely and with the knowledge of what the gamble can mean—both success and failure.

It has been estimated that 2.6 million people across the UK use cryptocurrency, with around 100,000 people in Northern Ireland using it as a form of finance. Interestingly, from my studies, it seems that outside of London, Northern Irish people buy the most Bitcoin, with 15% of people admitting to purchasing it—I am one of the 85% who do not. The fact that 15% do tells me, first, that there is a great interest in it and, secondly, that many people have faith in it, and they wish to be reassured in that.

Why does the hon. Gentleman believe that Northern Irish people like cryptocurrency more than Scottish, English and Welsh people do?

That is a question I cannot answer. I think that there are those who are prepared to take a gamble and those who are not. Perhaps people in Northern Ireland like the element of uncertainty, or perhaps investors like the certainty of the value of their investment. I will give an example of that, because it illustrates the situation very well.

Some 38% of people in Northern Ireland say that they have thought about purchasing cryptocurrency but have not yet done so. What some forget is that Bitcoin is a form of finance. Some bars and restaurants across the UK accept it as a form of payment, so it must be regulated. What I am seeking to do today, as someone who does not have any real knowledge of how the system works, and what I always look to do, is to consider how we can do things better and how we can regulate crypto and make it safe.

We have heard many stories of how accessible and worthwhile Bitcoin and cryptocurrency can be. I know the hon. Member for East Kilbride, Strathaven and Lesmahagow (Dr Cameron) has a great interest and knowledge in this subject matter. One of my constituents, who is only 28, invested £1,000 in Bitcoin when he was 23. The value of that today is £40,000. What an investment that young fella made! It was probably not a big amount for him, but at the same time he took the gamble. Knowing when to stop is one thing, but continuing the gamble and risk will not always work out well for everyone. People are making extortionate amounts, but it is important that the dangers and risks of addiction are highlighted. Those are some of the concerns I have on safety, and that is where regulation from the Government and the Minister would be most noticed.

Many have heard the story—I wonder how it could ever have happened—that in 2013 a British man accidentally threw away a laptop hard drive that contained what would be worth £280 million today, so cryptocurrency can be incredibly volatile and has been described as overhyped. The Bank of England has strongly highlighted the consumer risks of cryptocurrency and has tended to downplay the threat they may cause. In addition, the FCA has regulated some cryptocurrencies, which tend to function like shares or investments.

Thank you, Ms Rees, on behalf of all of us for saving this morning’s debate. It would have been a great pity if all the work that some hon. Members had put into their speeches had gone to waste. I thank my good and hon. Friend the Member for West Dunbartonshire (Martin Docherty-Hughes) for leading the debate in such a well-informed way. From conversations I have had with him, I know that although he definitely sees the huge potential benefits of cryptocurrency, he is also all too well aware of the potential pitfalls.

My hon. Friend gave us a helpful history of cryptocurrency and, importantly, reminded us that it has a particular culture that some of us might be interested in. We have to recognise that there may be certain attitudes to risk in that culture; I think he used the phrase “have fun staying poor”. If people involved in those games—and they are games for too many people—are happy to stay poor or run the risk of being poor, that is all very well. However, many people are sucked in without understanding the risk that they might suffer significant financial losses.

My hon. Friend repeatedly referred to the crypto bubble, which is an accurate description. The one thing all bubbles have in common is that they burst; we have to ensure that regulations are brought in quickly enough to stop it being a bubble before it bursts. He also pointed to flaws in the way the Financial Conduct Authority operates, on which I agree with him wholeheartedly. He referred to the collapse of Terra, whose total value went from something like $45 billion to nil in approximately 72 hours. That is how quickly things can go either well or very badly in the world of crypto.

The hon. Member for Rother Valley (Alexander Stafford) made an interesting speech. He was correct in describing Britain as the beating heart of financial services, or words to that effect; financial services are a massive part of the economy of London and the whole United Kingdom. However, I would caution him that we must recognise the fact that, although some people are in denial, Britain—London in particular—is gaining a reputation as one of the best places in the world to commit financial services fraud. If we continue to deny that and think of it as a problem that will go away, the entire future of London as a financial services centre of excellence could be in doubt.

I thank my hon. Friend so much for giving way and for the important points he is making. I wholeheartedly agree that consumer protection must be at the forefront of the work that is taken forward. Does he agree that it is important that as many people who are interested in this sector as possible get in touch with the crypto and digital assets all-party parliamentary group, which is currently engaged in an inquiry into the sector, in order to consider regulation, recommendations and consumer protection, as well as the opportunities for growth?

I am quite happy to take that unashamed plug for the APPG. Given that it has been mentioned and will be recorded in Hansard, I have no doubt that those who are interested in its work will take up my hon. Friend’s offer.

Crypto has all the characteristics of all the great scams in history; indeed, it has most of them on a scale that very few of those other scams had. It has the possibility to become and to facilitate the biggest scam in human history, if we let it. We need to co-operate with other jurisdictions to regulate in such a way that means that the sector continues to grow and deliver benefits, but does not expose, as I have said, either individuals or potentially whole economies to unacceptable risks.

Although I welcome the Government’s steps on regulation, which I hope will be only the first steps on a much longer journey, I am concerned that what has been offered to date has been a patchy and piecemeal approach to regulation, compared to the far more comprehensive proposals in, for example, the EU’s draft regulation. I would not expect the Government to admit it, but I worry that this is another example of settling for second best just to prove that we are different from the European Union.

We should always remind ourselves that even technological advances that end up having massive benefits for humanity can have their downside. I know a lot of people, including a lot of Members of Parliament, who are only alive today because of radiology and radiotherapy, and that would not have happened without the genius and greatness of Marie Curie, who is one of the greatest human beings ever to have lived. Marie Curie was killed by her own discovery. Indeed, almost all the people who were the first to receive the benefits of the “miracle” radium pills that followed on from her discovery died a horrible death from cancer.

The message is: let us not turn our backs on new technologies or be scared of innovation, but seize the opportunities that such technologies offer. But just as developments in scientific and medical technology can carry risks for humanity as well as huge benefits, so can advances in financial technologies. The technological advances that we are seeing just now are happening at a pace that we could not have imagined even four or five years ago. That means that regulation must be flexible and able to adapt very quickly to identify where the potential risks are and to close them down.

It is a pleasure to serve under your chairship, Ms Rees.

I congratulate the hon. Member for West Dunbartonshire (Martin Docherty-Hughes) on securing this important debate and on setting out in detail many important issues, particularly a number of matters that he raised around fraud and things that the Government can do. He has significant expertise in this area, as is evident from what he has presented in today’s debate and the fact that he chairs the all-party parliamentary group on blockchain. I thank other hon. Members who have taken part in the debate, particularly the hon. Members for Rother Valley (Alexander Stafford) and for Strangford (Jim Shannon), who raised a number of issues, such as fraud. I also thank those who have made interventions, raising consumer protection issues.

I welcome the opportunity to debate the important issue of cryptocurrencies and cryptoassets, and the Government’s regulatory approach to the industry. This debate is well overdue. In recent years, crypto has entered the mainstream, with an estimated 2.3 million people in the UK owning cryptoassets and the number of companies trading in crypto likely to grow further over the coming years, so this is a good moment to reflect on both the benefits and risks of cryptoassets and related technologies.

Many early advocates of crypto believed that it could lead to the end of central banking, the replacement of the dollar and fiat money by Bitcoin—or digital gold—and an upending of the regulation of markets and of the potential surveillance of consumers. However, crypto supporters have so far been disappointed. Like many utopian projects, this had collided with the realities of geopolitics, corporate power and illicit finance. I echo the comments made by the hon. Member for West Dunbartonshire. With reports that Russian oligarchs may have converted their assets into cryptocurrencies to avoid sanctions, many are rightly questioning whether crypto has a future at all.

In recent months, we have seen a huge crash in the value of many of the leading cryptoassets. During the recent period of crypto market turmoil, Bitcoin, Ethereum and other coins have collapsed, putting millions of UK consumers’ savings at risk. Research published by crypto trading platform Gemini found that the number of people investing in crypto has rocketed in the last 12 months, and as many as one in five people in the UK has lost money in the crypto crash. Despite this, the Government are wilfully using out-of-date data, which estimates that only 3.9% to 4.4% of British adults own crypto. I am not sure whether the Minister has more up-to-date stats. Not only that, but the Government have so far failed to properly regulate the crypto sector and protect consumers. They also have no idea how many people have been affected by the current crypto crisis, so there is clearly a desperate need for a clear strategy on the regulation of cryptoassets and blockchain technology.

On the point that the shadow Minister is making, it is important that the Minister addresses the issue of potential sanctions evasion via digital currency. Also, I pay tribute to the fact that Ukraine is now one of the countries that uses most crypto, and during this horrendous wartime experience it has been able to support its economy and its troops—buying military supplies and supporting those on the frontline—through crypto. There is a mixed picture, but one that has to be addressed.

I support the hon. Member’s comments about Ukraine. I am not saying that using crypto should be scrapped, but the Government need to take more action to address the fact that there are issues related to the growth in fraud and in activity that is damaging to the UK. Too often, the Government have stood by and let firms responsible for these scams trade with impunity. They have continued to delay the introduction of stronger rules on the advertisement and marketing of cryptocurrency products. A survey by investment platform AJ Bell found that many crypto investors are simply unaware of the high-risk nature of their investments.

I hope the hon. Lady agrees that, as I said in my speech, we have existing legislation that we should be pushing to the fore while we wait on new regulation. I take the point made by my hon. Friend the Member for East Kilbride, Strathaven and Lesmahagow (Dr Cameron) about Ukraine and cryptocurrency in that state, but there is clearly a high rate of scamming in relation to the raising of cryptocurrency for the Ukrainian Government and their campaign against the Russian Federation. Sometimes, people might not be giving their money to Ukraine; they might be giving it to some scammer in North Korea, or in the Russian Federation, who says they are raising money for Ukraine.

The hon. Member makes an important point—he has expertise in the area—and there needs to be some sort of action from the Government to ensure that there is an overall strategy to address the issue. Some companies are doing good work, but they are not aware of the high risks, which links with what the hon. Gentleman has just said about the high rate of scamming. The high rate of scamming is worrying, particularly as many investors have sunk a huge proportion of their savings into crypto. Half do not have an individual savings account while four in 10 do not even have a pension. The serious collapse in crypto risks not only wiping out the life savings of many people, but significantly disabling the UK’s financial market. I am sure none of us wants that to happen.

The Government responded to their consultation on the regulatory approach to cryptoassets, stablecoins and distributed ledger technology in April, and there are measures to bring stablecoins into the regulatory perimeter in the upcoming Financial Services and Markets Bill. We will of course scrutinise the Bill carefully and look closely at what progress is being made through Parliament, but I have a number of questions to ask the Minister, particularly in relation to this debate.

Why have the Government introduced legislation relating only to stablecoins, and not a comprehensive regime for crypto more broadly? It is simply not good enough that they will not even consult on such a regime until later this year, as the stats show that urgent action is needed. If we do not have a comprehensive framework to address the risks and opportunities presented by cryptoassets, we risk falling behind our global competitors in the crypto space, including the US and the EU, which has just agreed a comprehensive regime for regulating the cryptocurrency industry.

How will the Government crack down on misleading advertising promotions, beyond regulated stablecoins? Members from across the House have discussed fraud today, and the Government need to take responsible action on it. I do not want consumers to be left to deal with it and take responsibility for it. Does the Minister accept that the Government have failed to address money laundering and fraud in this sector, and have allowed criminals to get rich at the public’s expense?

It is a great pleasure to serve under your chairmanship, Ms Rees. I join all hon. Members who have spoken in congratulating the hon. Member for West Dunbartonshire (Martin Docherty-Hughes), first, on securing the first parliamentary debate on this topic and, secondly, on his tour de force speech covering the opportunities and risks of crypto technology. I expect that this will be the first of many debates on the subject.

During today’s debate, hon. Members have rightly focused largely on the risks of the new technology, concerns about consumer protection and areas for regulatory clarity, but I suggest that we all share the hope that, through innovation and creating the right conditions, we can achieve opportunities for the crypto industry in the UK to contribute largely to the growth of the wider economy.

I hope to cover a number a points that the hon. Member made in his opening speech. I will start with three of them: financial inclusion issues, particularly with regard to central bank digital currencies; requirements for carbon neutral data centres; and enforcing the existing law against fraud. I hope to cover those points in my speech, but if I do not, I look forward to engaging with him, the hon. Member for East Kilbride, Strathaven and Lesmahagow (Dr Cameron) and her APPG in the future.

Throughout the debate we have spoken about a wide range of related but distinct terms, and I would like to take a moment to separate some of them. First, distributed ledger technology is exactly what it says: it is a form of technology that allows ledgers to be kept up to date despite being in multiple places or distributed. Secondly, blockchain is a type of DLT that uses encryption, adding security and new functionalities. That is the technology that underpins crypto, although it also facilitates innovation in many other sectors, such as trade finance. Thirdly, cryptoassets are privately issued digital assets that rely on distributed ledger technology such as blockchain for their workings and security. So-called cryptocurrencies are the most well-known cryptoassets today. I will use the phrase “crypto technologies” to refer to cryptoassets and the blockchain that underpins them in the round. Stablecoins are cryptocurrencies that seek to maintain a stable price by pegging to a real commodity or a currency, but there are other forms of stablecoins that have their supply regulated by algorithm. Again, there are two separate terms under that overall heading.

There is so much value. Does the Minister recognise that this technology is not new? It has been around for nearly three decades.

Absolutely. One of the issues, which the hon. Gentleman raised in his speech, is how pervasive the technology has become since 2008. We are still looking at the different applications and different levels of the technology, as I outlined at the start of my speech, both within financial services and more broadly within Government. He mentioned the issues in Estonia and in the economy as a whole. The technology has been around for a while, but it has many tentacles that have spread in many different ways through countries and international economies.

The hon. Gentleman will also know that in addition to that growth, as he and other hon. Members have mentioned, there has been substantial volatility. Notwithstanding those market fluctuations, the potential for DLT technology underpinning cryptoassets remains powerful in many ways. Across the world, NFTs are entering common parlance. The hon. Member for Erith and Thamesmead (Abena Oppong-Asare) talked about one that could have a revolutionary impact on the creative industries.

Blockchain technology is being used in healthcare to store patients’ medical records securely; in housing to record property rights; and in supply chains to track the path and safety of food throughout the farm-to-table journey. In Government, we are developing opportunities here in the UK to use distributed ledger technology for customs and international trade, to ease the import of goods. DLT has the potential to change how our financial markets work, too. That is why new have started work to understand how it might be applied to a UK sovereign debt instrument.

Even the fundamental architecture of the internet may undergo changes as Web3 becomes more popular, with blockchain offering the potential to drive a more decentralised, user-owned ecosystem. The innovation powered by DLT could spill across society, well beyond the scope of today’s debate, which rightly focuses on financial services.

As crypto technologies grow in significance, the UK Government are seeking ways to achieve global competitive advantage for the United Kingdom. We want to become the country of choice for those looking to create, innovate and build in the crypto space. We are already the leading European fintech hub, second only to the US worldwide. By making this country a hospitable place for crypto technologies, we can attract investment, generate new jobs, benefit from tax revenues, create a wave of groundbreaking new products and services, and bridge the current position of UK financial services into a new era.

I thank the Minister for his important points about taking things forward in a progressive way. Given the current uncertainty in the Government sphere, while the UK is still committed to making the UK the global home of crypto, what progress has been made in establishing the cryptoasset engagement group that was announced in April, to bring on board leaders from the sector and engage positively?

The hon. Lady is right to mention the importance of bringing people together. I will refer to that. May I also take the opportunity to re-emphasise the work that her APPG is currently doing on regulation for consumer protection in this space? There are multiple participants and interests, so I echo her point.

At the forefront of this is something that we have talked a lot about when it comes to the culture. We have highly driven entrepreneurs with great skills. Having their teams in the UK enables us to build the wealth and experience that can power further discoveries and growth in a constructive way.

As is always the case with innovation, there are risks that need to be managed. For one, cryptoassets can be used to hide ill-gotten gains through corruption or organised crime. Since January 2020, cryptoasset firms operating in the UK have been subject to the money laundering regulations. We recently brought forward legislation to implement the financial action taskforce travel rule for the transfer of cryptoassets.

Cryptoasset firms must conduct customer due diligence checks, just as banks do, including sanctions screenings. Through the Economic Crime (Transparency and Enforcement) Bill, we will give law enforcement new powers to seize and recover cryptoassets. As would be expected of a global financial centre, we will put a very robust system in place, and will never compromise on our high standards. That was the key point made by the SNP spokesman, the hon. Member for Glenrothes (Peter Grant).

Separately, there are legitimate concerns, highlighted by the hon. Member for West Dunbartonshire and echoed by my hon. Friend the Member for Rother Valley (Alexander Stafford), about the energy intensiveness in the process of creating some types of cryptoassets. As a global centre for green finance, we are already looking closely at energy usage associated with certain crypto technologies, and I will take away the point the hon. Member for West Dunbartonshire made about carbon neutral data centres regulation.

I thank the Minister for his answers. He said that it is the regulator’s responsibility to address this, but the Government also need to take responsibility. I would be grateful if the Minister could let us know whether the Government will produce a comprehensive framework. Can he also tell us what work the Government have done to check that the FCA has the capacity and expertise to look into this?

I am grateful to the hon. Lady for emphasising those additional points. She will know that the Bill that we are discussing in the House later today will bring stablecoin within the regulatory perimeter. There are two other aspects of cryptoassets that I think she is referring to. One is central bank digital currencies, on which there will be a consultation towards the latter part of this year. The other is the broader aspect of cryptoassets, which has been part of the discussion today. That will be consulted on, both by Her Majesty’s Treasury and the FCA, in the months ahead.

The hon. Lady’s second point was about the resources available, and the skills in the FCA. I have full confidence in both of those. The FCA has had increasing resources; I meet its head regularly and discuss these matters with them, so I am confident that the resources and the skills are in place.

Will the hon. Gentleman give way?

I am conscious of time, and I have a few more things to say. I have mentioned a few of the known risks that we face, and they present real challenges. We will, however, be better placed to shape the sector and lead it to social and economic good if we actively engage with it from the outset, and that is what the Government are doing. The role of the Government is to be on the front foot to achieve a global advantage. To do that, we in Government must provide a solid framework, so that decision makers can take decisions in a risky environment, and we are bringing forward a number of reforms, through carefully tailored regulation. Informed by the sector, and after a consultation that is open to anyone, we will create a dynamic regulatory landscape; that is how we will tackle issues ranging from fraud to volatility and environmental considerations.

The Government are legislating to bring certain stablecoins, where they are used for payment, within the regulatory perimeter by expanding the payments and e-money regulatory frameworks. Increased competition between stablecoins and existing UK payment systems could lead to lower costs and improved services in the long run. Through the Financial Services and Markets Bill, we will build into our regulatory framework an ability to harness those benefits of stablecoins. At the same time, we will protect consumers by ensuring that the face value of stablecoins is backed by the underlying funds, and that consumer funds will be safeguarded if a stablecoin provider becomes insolvent.

In the first instance, we wanted to focus on areas of immediate potential and concern, but the market has changed sufficiently for us to look at regulating a broader set of cryptoassets. Earlier this year, we committed to consulting on this broader regulation, including the trading of unbacked cryptoassets such as Bitcoin. We will continue dynamic engagement with industry; for example, the FCA’s recent CryptoSprints brought together over 100 industry participants to discuss future regulation. We know how important it is that there remains strong co-ordination between the UK authorities as we develop the regime; that is why the Cryptoassets Taskforce, launched in 2018, continues to have a vital role in informing where regulation can drive forward UK objectives.