Full text of the speech by the UK Treasury Economic Secretary: Blockchain is the most misunderstood invention in business history

Source: UK Government Official Website

Compiled by: Hu Tao, Chain Catcher

Introduction: On April 4, during the 2022 FinTech Week at the Innovate Finance Global Summit, UK Treasury Economic Secretary John Glen delivered a keynote speech, in which he stated that the UK government confirms the inclusion of stablecoins used as a means of payment within the scope of payment regulation, creating conditions for stablecoin issuers and service providers to operate and invest in the UK. At the same time, the UK government is considering legal amendments in various areas such as DAOs and crypto taxation to make the UK the best place in the world to start and scale crypto companies and to become a global center for crypto asset technology.

The following is a compilation by Chain Catcher of the original text, with some omissions:

Ladies and gentlemen,

In the history of business, there has never been an invention as hyped and misunderstood as distributed ledger technology and blockchain.

For simplicity, I will use the all-encompassing term "crypto" or "cryptotechnology."

But I mean to make "crypto" the extraordinary, capricious underlying technology that makes it possible… What we can be sure of is that it will have a profound impact across multiple fields.

This does not happen often.

It is a challenge and an opportunity. Today, I want to tell you how we in the UK will respond.

Because we want this country to be a global hub—the best place in the world to start and scale crypto companies.

If I want you to take away one message today, it is that the UK is open for business—open to cryptocurrency enterprises.

We are still at the forefront of this technological breakthrough.

But there is not even a consensus on what crypto means… whether we will reach some sort of stability… or even whether crypto itself is a good thing.

There is a huge debate between skeptics and evangelists, with a wide range of views in between.

Some people are very concerned about cryptocurrencies and how they will harm consumers, provide a platform for unregulated illegal activities, and increase carbon emissions.

Others say it is the best thing ever. They believe that crypto can do things like fundamentally change global finance by making financial transactions more transparent, efficient, and democratic, putting money in the hands of people rather than states.

This leaves us with a big question to answer here in the UK: how will we respond?

Our answer is this:

If crypto technology is going to be an important part of the future, then we—the UK—want to get in and be at the forefront.

In fact, if we commit now… if we take action now… we can lead the way.

We have heard the concerns, some of which are valid.

That is why in this country, we have already stated that we will protect consumers by legislating to bring certain crypto assets within the scope of financial regulation. It is crucial for investors to understand the risks they are taking.

And, as the Bank of England's Financial Policy Committee recently pointed out, we also recognize that as crypto technology develops and becomes more closely linked with the core financial system, we need to ensure that regulators have the right tools to manage the associated risks.

We also know that crypto assets have proven attractive to criminals and hostile states. That is why we are taking proactive measures to prevent their misuse.

Since January 2020, crypto asset companies operating in the UK have been subject to anti-money laundering regulations, and we have recently consulted on implementing the Financial Action Task Force's travel rules for crypto asset transfers.

We have a very strong system, and we will not compromise on these high standards.

Particularly regarding the issue of Russia, the Office of Financial Sanctions Implementation issued a joint statement with the FCA and the Bank of England, reiterating that crypto asset companies must play a role in ensuring sanctions are enforced and providing guidance on how to do so.

The UK is also playing a leading role in negotiations on the new OECD crypto asset tax reporting framework to ensure increased tax transparency and consumer confidence in the industry, and to provide a level playing field for global tax reporting.

In terms of carbon footprint, the UK is a world-leading green finance center. Therefore, of course, we will closely monitor energy usage associated with certain crypto technologies.

These are all perfectly reasonable questions.

But equally, we see the enormous potential of cryptocurrencies. We want to give ourselves every opportunity to maximize that potential. We will not lower our standards, but we will maintain a technology-neutral approach. Strong and effective regulation will not stifle innovation; it will actually promote innovation—by giving people and businesses the confidence they need to think and invest long-term.

How will we do this?

Well, there are three key things that work in our favor.

We have a detailed plan, and we are determined to learn quickly. The government will lead the way in harnessing the potential of blockchain and supporting the development of the world's best crypto ecosystem.

Our view is that cryptocurrencies will impact many different industries—including financial services.

Change will be dynamic, which means that the way we regulate crypto technology also needs to be dynamic. Just like other financial activities and products.

We should not view regulation as a static, rigid thing.

Instead, we should think about regulation in terms of "code," like computer code, which we improve and rewrite as needed… tailored and proportionate, yes… but also flexible and technology-neutral… shaped by your input and suggestions, and collaboratively creating a dynamic regulatory environment that works for everyone through the crypto asset working group with the Treasury and regulators.

Of course, I am very aware of the recent reports regarding temporary registrations. This is a new world for new regulators and overseers. We need to work together, learn from each other, maintain these high standards, and work flexibly at the pace required by innovation.

Last year, we consulted on how to regulate so-called "stablecoins," with some companies eager to develop these coins for payment purposes.

Today, we will publish our response. As part of that, I can confirm that we will legislate to bring certain stablecoins within our payments framework, creating conditions for stablecoin issuers and service providers to operate and grow in the UK.

This will also enable consumers to use stablecoin payment services with confidence. The government will introduce this legislation as part of our ambition to provide a world-leading regulatory regime for stablecoins.

First and foremost, we want to focus on areas within the crypto space that have direct potential and concern—hence our commitment to stablecoins.

But we are now broadening that vision.

We believe the market has changed sufficiently that we can consider regulating a wider range of crypto activities, including trading tokens like Bitcoin. We will also consult on world-leading frameworks for other crypto markets that will promote safe and sustainable, and I hope rapid, innovation.

Looking ahead, the legal environment will also be crucial.

UK law and our world-leading legal services and courts are already a huge asset and can play an important role in making the UK an attractive hub for all things digital and more broadly for new technologies.

I want to thank the UK Law Commission for the important work it has done on the application of UK law in this area, chaired by Sir Geoffrey Vos.

I also want to thank the Law Commission for all the work it has done on digital assets and smart contracts, and I am pleased to announce that we have asked them to undertake a new project to consider the legal status of decentralized autonomous organizations.

These projects help ensure that we remain at the forefront of legal innovation, just as we did in the 19th century with the legal framework for limited liability companies and in the 1990s for derivatives and securitization markets. UK law can and should provide a legal foundation for the use of these borderless technologies.

Of course, all of these activities are taking place against the backdrop of exciting transformative innovations surrounding the next development of the internet: Web3, as many are calling it.

No one knows exactly what Web3 will look like. But blockchain is likely to be an integral part of its development, creating a more decentralized, open, and user-owned ecosystem.

We want this country to be at the forefront, seeking the greatest economic opportunities.

The government has already been working with digital regulators to understand what needs to be considered to bring the greatest benefit to the public.

We will also be in close contact with everyone regarding the changes we wish to make to the tax system.

Overall, we believe that tax law does not need a major overhaul to make it more accessible for cryptocurrencies.

But we will examine and address specific issues, such as the treatment of DeFi loans and staking. We will amend the investment manager exemption policy to eliminate disadvantages for UK fund managers, including those with crypto assets in their portfolios.

Most importantly, we want to position the UK as a jurisdiction that supports innovation, which is attractive to foreign investment and companies that have not yet established a fixed base.

The second thing we will do is that we are determined to learn quickly.

The UK has a good track record of promoting experimentation through the FCA's regulatory sandbox, which has supported over 50 companies using blockchain.

The FCA announced today that they will organize the first of a series of "crypto sprints" next month, involving dozens of industry experts.

The sprints will inform FCA policy thinking in real-time, with participants tasked with addressing some of the legal, technical, and regulatory challenges facing the industry and then proposing practical solutions that our government will act on as soon as possible.

We will also provide a financial market infrastructure sandbox, which the Chancellor announced last year, and we have made good progress in this area.

The sandbox operated by the Bank of England and the FCA will allow companies to experiment and innovate in providing services that support markets. In particular, this will enable them to test new technologies that can transform financial markets by improving efficiency, enhancing liquidity, increasing transparency, and boosting security.

We intend to launch and run it next year. If it tells us we need to update the relevant legislation, then we will do so.

In the same spirit, we will also establish a high-level industry group, the Crypto Asset Engagement Group, to help guide our next steps forward.

Direct and open channels of communication will be chaired at the ministerial level—with senior representatives from the FCA, the Bank of England, and the business community—meeting up to eight times a year with a full and active agenda.

Not just talking… but talking and then making decisions, taking concrete actions. Informing and accelerating work already underway elsewhere, including with regulators.

Our third and final key advantage is that the government will take the lead.

Unlike the EU and the US, the UK has fewer regulators, with the overall framework set by the central government, allowing for decisive action. Therefore, we can move very flexibly.

And believe me, we have a determined, unified, and focused government that will prioritize this.

For example, we will undertake a work program to explore whether it is possible to apply DLT (Note: Distributed Ledger Technology) to the debt issuance process.

Can the UK one day use DLT to issue debt instruments? I do not know the answer yet… but let’s find out.

We will lead by example.

We are already effectively using crypto technology to enhance government efficiency. We are exploring opportunities to use distributed ledger technology for customs and international trade to streamline the import of goods, and we will continue to support further deployment of that technology.

Finally, I announce today that the Chancellor has asked the Royal Mint to create an NFT, which will be issued this summer, symbolizing our commitment to a forward-looking approach, and there will be more details coming soon.

So ladies and gentlemen,

There is a real opportunity to consolidate our advantages in fintech, harness the capitalist energy that has already made UK financial services a reality, and leverage it to unlock the potential of crypto technology.

This will not happen overnight, although I appreciate that many of you wish it would. But we will get there as quickly as possible in a reasonable and responsible manner.

So what will the future of cryptocurrency in the UK look like?

No one can confirm.

But we believe that by making this country a hospitable place for cryptocurrencies, we can attract investment, create a large number of new jobs, and generate a wave of groundbreaking new products and services.

We are at the forefront of important things.

We have the opportunity to shape and lead it.

That is what we intend to do.