Good afternoon.
Thank you, Emma, for that kind introduction.
It’s an honour to attend this year’s Tokenisation Summit. I’d like to congratulate City and Financial Global for bringing us together here today. You’ve produced an exciting agenda and impressive cast list, across both industry and the regulatory communities.
It was with a great sense of responsibility that I accepted the Prime Minister’s offer to become Economic Secretary to the Treasury following the general election in July.
Because as the Chancellor said last week, the financial services sector is the jewel in the crown of our economy. It is at the centre of our economic vision, and our plan for economic growth.
One of this sector’s biggest strengths has always been its willingness to embrace innovation.
This summit is proof that that spirit of innovation is alive and well. And it’s arguably more important now than ever before.
If we are to maintain the UK’s position as a leading financial services hub, we need to lean in to the emerging and disruptive technologies that could change our industry dramatically in the coming years.
I’ll focus today on just one of those – namely, distributed ledger technology …
The transformative potential of DLT is clear, whether you are talking about cryptoassets – and I will cover our approach to regulating those later – or how it might revolutionize traditional markets through tokenisation and the development of other digital assets.
I know it will take time for it to become clear exactly how the sector can make the most of the capabilities this technology provides.
And I want to say at the outset that actively supporting that process is a priority for me in this role… as we seek to find the right balance between giving firms regulatory certainty, while ensuring the sector has the space and flexibility to develop the solutions that will have the most impact.
DIGITAL ASSETS
Let me talk a little about the work we are already doing, starting with digital assets.
In January of this year, my party published its ‘Financing Growth’ paper, setting out what our plans for financial services would be in office.
This included our ambition to make the UK a global hub for securities tokenisation, through initiatives such as exploring UK sovereign debt issuance using DLT, and taking forward financial market infrastructure sandboxes.
And since the election, I am pleased to say we have made progress on both fronts.
On 30 September, the Bank of England and Financial Conduct Authority jointly opened the Digital Securities Sandbox. This pioneering initiative will help the sector to adopt DLT across our capital markets, and is the product of effective collaboration between industry, government and the regulators.
By making temporary modifications to legislation and regulator rules, the sandbox enables participating firms to innovate creating entirely novel platforms through which securities can be created, traded, and settled on distributed ledgers. Transactions in the sandbox are real transactions, conducted in a live environment, with close monitoring by the regulators.
The Digital Securities Sandbox is a fantastic example of what we can achieve when government, regulators and industry work together. I hope participation in it will encourage and foster greater innovation amongst firms looking to use DLT across our capital markets.
Last week, the Chancellor announced, in her Mansion House speech, that the government will issue a Digital Gilt Instrument, referred to as ‘DIGIT’. as I set out to Parliament, this pilot issuance will take place in the Digital Securities Sandbox. This pilot will allow the government to explore first-hand the benefits that DLT could bring to the debt issuance process, as well as stimulating the wider development of DLT platforms and infrastructures across UK capital markets.
This is a hugely significant milestone, one which demonstrates our support for DLT innovation and signifies that the UK intends to lead the world in digital assets adoption.
I am looking forward to engaging the sector on what technology options are available to facilitate such an issuance.
The Sandbox and DIGIT complement other work happening to support this agenda, including the Digital Assets Bill the government has introduced into Parliament, that clarifies the law around property in relation to digital assets, and the great work underway to look at innovation in areas such as funds, being taken forward by the Technology Working Group established by the Asset Management Taskforce.
THE BIG PICTURE
But, of course, we can’t talk about tokenisation without also talking about cryptoassets –
After all, it was through cryptoassets that the potential for widespread application of blockchain technology was proven.
And it is clear that cryptoassets are here to stay. The number of people that own crypto is rising year-on-year, in the UK and globally. And of course, in the last couple of weeks developments in the US have led to a big surge in cryptoasset markets.
But it is important that we don’t see traditional financial services and cryptoassets as two wholly separate islands with no means of crossing between.
If we are truly going to get this right in the UK, we must recognise that is not simply a case of financial firms lifting the technology developed through crypto and applying it to their own purposes.
Rather, we should understand that traditional finance and cryptoassets have the potential to play an integrated role in each other’s future, to their mutual advantage.
To give one example, the tokenisation of securities could facilitate so called ‘atomic settlement’ where payment for a security and its transfer of ownership happen simultaneously.
However, realisation of this in its most efficient form requires a settlement instrument that also runs on the blockchain.
Today the only meaningful proposition for such a settlement function is stablecoins. However, in future this role could also potentially be fulfilled in future by tokenised versions of central bank or even commercial bank money.
Which brings me on to the government’s plans for regulating cryptoassets, including stablecoin, in the UK.
CRYPTOASSET REGULATION
I know that firms with an interest in the future regulatory treatment of cryptoassets have been eager for news.
And I thank you for your patience.
In October of last year, the Treasury published detailed proposals for the financial services regulation of cryptoassets in the UK.
Those proposals included the creation of various new regulated activities for cryptoassets, such as operating a cryptoasset trading platform, as well as associated regimes for both admissions to trading and market abuse.
I can confirm that those proposals still stand, and that the government intends to implement them in full.
At the point when those proposals were published last year, the Treasury also set out details for the treatment of fiat-referenced stablecoins as a distinct asset class.
This included a new regulated activity for issuance of stablecoins in the UK, as well as safeguarding requirements in line with the custody of other cryptoassets.
The proposals also included making changes to UK payments regulations to ensure consumers had adequate protections when using stablecoins for retail payments.
The approach for regulating stablecoin was developed in the context of propositions that stood to scale very quickly in the retail space.
And so, the UK responded to this, much like other jurisdictions did.
However, that ‘big bang’ moment in retail payments did not come, and the market has continued to evolve in a more organic way.
How stablecoin will best make its mark in the future remains a live question, and there are potential opportunities on both the retail and the wholesale side.
I said earlier that it was critical to get the balance right between regulatory certainty so firms can invest in the UK, but also provide sufficient space for innovation.
That means not regulating innovative propositions such that they become restricted to specific use-cases, when the market might find further, equally valid use-cases in future.
So, with this in mind –
The government intends to proceed with the new regulated activities for stablecoin, which will be implemented to the same timetable as the rest of the regulatory regime for cryptoassets. Doing everything in a single phase is simpler, and it just makes more sense.
The regulated activity for stablecoin issuance will ensure that the Financial Conduct Authority can properly manage stablecoin specific risks, most notably those associated with management of the backing assets.
This approach also ensures the UK is in line with the recommendations of expert international bodies such as the Financial Stability Board.
However, the government does not intend to bring stablecoin into UK payments regulation at this time. Such an approach would place additional regulatory burdens on certain stablecoin activities in a way that would not be proportionate based on the current use cases.
Please be assured that whilst it has seemed quiet, work has not stopped over recent months,
And we aim to engage firms on draft legal provisions for the cryptoasset regime including stablecoins as early as possible next year.
Finally, I know that uncertainty over whether cryptoasset staking services constitute a Collective Investment Scheme under financial services law has impacted the provision of these services in the UK.
It doesn’t make sense for staking services to have this treatment,
So I can confirm that the Government intends to proceed with removing this legal uncertainty accordingly.
The heavy lifting has been done, so we’re full steam ahead on this now.
To be clear, that doesn’t mean there aren’t risks to consumers from these services.
However, they are better accounted for within the forthcoming cryptoasset regulatory regime,
And in the meantime, existing regulatory requirements should apply where appropriate, as they do for other cryptoasset services – for example requirements to ensure financial promotions are fair, clear, and not misleading.
In conclusion, thank you again to City and Financial Global for organising this fantastic summit and for inviting me here today to speak to you all.
If we are going to truly unlock the best of what tokenisation, blockchain technology, and cryptoassets have to offer in the UK,
Then we need to tie the threads together properly.
That means recognising and facilitating the opportunities for traditional markets and cryptoassets to succeed to their mutual benefit.
It also means ensuring a coherent joined-up approach across UK authorities, so that firms have the certainty to invest and grow, as well as the space and flexibility to innovate.
I hope that, together, we can successfully harness the full potential on offer for the UK in this regard, in contribution to the broader growth and success of the economy.
I look forward to hearing the outcomes of today’s summit and to further engagement with you all.
Thank you.
