Keynote Speech by John Glen, Economic Secretary to the Treasury, at the Innovate Finance Global Summit
Keynote Speech by John Glen, Economic Secretary to the Treasury, at the Innovate Finance Global Summit during Fintech Week 2022 .
Ladies and Gentlemen,
Thank you, all.
And let me start by conveying the Chancellor’s apologies – and disappointment – that due to other commitments he can’t be here himself today.
Because fintech is a fast-moving and exciting sector… in large part, because of your ideas, your hard work and expertise… and it’s absolutely at the forefront of the Chancellor’s mind as he thinks about the future… about supporting the economic recovery… and about making the UK the world’s preeminent financial centre.
And that last point is crucial.
Financial services make an enormous contribution to this country in many different ways.
And within that… with every passing month… fintech is punching higher and harder.
Year-on-year investment growth in UK fintech was up more than 200% in 2021.
We’re the leading European fintech hub… and second only to the U.S. worldwide.
Almost half of the fintech unicorns in Europe are based in the UK… and last year, the sector attracted more investment than France, Germany, Sweden, and the Netherlands combined.
That matters. Because, as the Chancellor told you last year, part of the way we become that pre-eminent financial centre that he describes is by having the technology here to do things better.
So be in no doubt: the Chancellor and I value all of you immensely… and will continue doing everything we can to support you.
That’s why we commissioned Ron Kalifa to undertake an independent review on UK fintech… and why we’re straining every sinew to implement his recommendations.
The FCA has already expanded and reinforced its world-leading Regulatory Sandbox… it’s piloting the new ‘scalebox’, which offers enhanced support to newly authorised firms… and just a few weeks ago, Innovate Finance announced the launch of their International Fintech Group, which they will co-chair with the Department for International Trade.
One of the Kalifa Review’s central recommendations was the creation of a new, national fintech body: the Centre for Finance, Innovation, and Technology… a force for turbocharging UK fintech… and I’m delighted that the CFIT Steering Committee, chaired by Ron himself, met for the first time last week.
Another of the great UK and fintech success stories has been ‘Open Banking’… with technology that is supporting innovation and empowering consumers.
And, here too, we’re setting direction for how the UK can build on its successes so far… notably through a new regulatory oversight committee that will work with industry to agree and implement the vision for the future of open banking in the UK.
UK fintech is in a great place. And it’s our job, as a Government, to ensure that success continues…. a mission to which we are very much committed.
But there’s more.
The Chancellor didn’t ask me to come here to thank you and congratulate you.
The Chancellor, the Treasury, and I have a specific message… on new technologies.
Ladies and Gentlemen,
Never in the history of commerce has there been invention as hyped and misunderstood as Distributed Ledger Technology and Blockchain.
For simplicity’s sake, I’m going to use the catch-all term ‘crypto’ or ‘crypto-technologies’.
But what I mean is the extraordinary, mercurial, underlying technology which makes ‘crypto’ possible… and which we can be pretty sure is going to have profound effects across multiple domains.
And that doesn’t happen very often.
It’s a challenge… and it’s an opportunity… and today I want to tell you how here in the UK we’re going to respond.
Because we want this country to be a global hub - the very best place in the world to start and scale crypto-companies.
If there is one message I want you to leave here today with, it is that the UK is open for business - open for crypto businesses.
We’re still right on the cusp of this technology breaking through.
But there isn’t even consensus on what the implications of crypto are… when or whether we’re going to reach some kind of steady state… or even whether crypto itself is a good thing.
There’s a massive debate between the sceptics and the evangelists, and there are a wide range of views in between.
Some people worry deeply about crypto… and about how it’s going to harm consumers… or provide a platform for illicit activity free from government oversight… or drive-up carbon emissions.
Others say it’s is the best thing ever. They argue that crypto could do things like revolutionise global finance… by making financial exchanges more transparent, efficient and democratic, and placing currency in the hands of people not nations.
That leaves us here in the UK with a big question to answer: How are we going to respond?
Our answer is this:
If crypto-technologies are going to be a big part of the future, then we – the UK – want to be in, and in on the ground floor.
In fact, if we commit now… if we act now… we can lead the way.
We hear the concerns… some of which are valid.
That’s why, in this country, we’ve already said that we’ll seek to protect consumers by legislating to bring certain cryptoassets into the scope of financial promotions regulation… and it’s essential that investors understand the risks they are taking.
And, as the Bank of England’s Financial Policy Committee recently noted, we’re also mindful that as crypto-technologies grow and become more interconnected with the core financial system we’ll need to ensure that regulators have the right tools to manage the associated risks.
We’re aware too that cryptoassets have proven attractive to criminals and hostile states. Which is why we’ve taken proactive steps to prevent their misuse.
Since January 2020, crypto-asset firms operating in the UK have been subject to the Money Laundering Regulations, and we recently consulted on implementing the Financial Action Task Force’s Travel Rule for transfers of crypto-assets.
We have a very robust system in place, and we won’t compromise on those high standards.
On Russia specifically, the Office of Financial Sanctions Implementation has published a joint statement with the FCA and Bank of England reiterating that crypto-asset firms are required to play their part in ensuring that sanctions are enforced, and offering guidance on how to do that.
The UK is also playing a leading role in negotiations on the new OECD Crypto-assets Tax Reporting Framework, ensuring enhanced tax transparency and consumer confidence in the sector, and enabling a level playing field in tax reporting globally.
On carbon footprint , the UK is a world-leading centre for green finance… so, of course, we will be looking closely at energy usage associated with certain crypto-technologies.
Those are all perfectly reasonable things to question.
But, equally, we see enormous potential in crypto… and we want to give ourselves every chance to take maximum advantage. We aren’t going to lower our standards, but we are going to maintain our technologically-neutral approach. Having robust and effective regulation won’t hinder innovation, it’ll actually boost it - by giving people and businesses the confidence they need to think and invest for the long-term.
How are we going to do that?
Well, there are three key things in our favour.
We have a detailed plan… we are, I am, determined to learn quickly… and the government will lead the way in harnessing the potential of blockchain and supporting the development of a world-best crypto ecosystem.
First, a detailed plan.
Our view is that crypto is going to impact many different sectors – including financial services.
Change is going to be dynamic… which means that the way we regulate crypto-technologies needs to be dynamic too. Just as it should be for other financial activities and products.
We shouldn’t be thinking of regulation as a static, rigid thing.
Instead, we should be thinking in terms of regulatory ‘code’ … like computer code… which we refine and rewrite when we need to… tailored and proportionate, yes… but also nimble and tech-neutral… shaped by your input and advice… and with the Treasury and regulators, through the Cryptoassets Taskforce, working together to create a dynamic regulatory landscape which works for everyone.
Of course I am very aware of recent reporting on the temporary regime. This is a new world for the newly regulated and the regulators. We need to work together, learn from each other, to maintain those high standards while being flexible and working at the pace that the speed of innovation demands
We consulted, last year, on how to regulate so-called ‘stablecoins’, which some companies are keen to develop for payment purposes.
Today, we’re publishing our response… as part of which I can confirm that we will be legislating to bring certain stablecoins into our payments framework… creating the 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… and the government will introduce this legislation, as part of an ambition to deliver a world-leading regulatory regime for stablecoins.
We wanted, in the first instance, to focus on areas of immediate potential and concern in the crypto sphere – hence our work on stablecoins.
But we are now widening that gaze.
We think the market has changed sufficiently for us to look at regulating a broader set of crypto activities including trading of tokens like Bitcoin… and we will consult on a world-leading regime for the rest of the crypto-market too… a regime that will facilitate safe and sustainable, and I hope rapid, innovation.
Looking ahead, the legal landscape will also be crucial.
English Law and our world-leading legal services and courts are already a huge asset, and can play a big part in making the UK an attractive hub for all things digital and for new technologies more generally.
And I want to thank the UK Jurisdiction Taskforce, chaired by Sir Geoffrey Vos, for its important work on the application of English Law in this field.
I also want to thank the Law Commission for all the work they’ve done on digital assets and smart contracts… and am delighted to announce that we are asking them to undertake a new project… to consider the legal status of Decentralised Autonomous Organisations.
These projects are helping ensure that we remain at the cutting edge of legal innovation, just as we did with the limited liability companies in the 19th century, and the legal framework for derivatives and securitisation markets in the 1990s. English law can and should provide the legal foundation for the use of these borderless technologies.
Of course, all of this activity is happening against a backdrop of exciting, transformative innovation around the next evolution of the internet: Web3, as many call it
No-one knows for sure yet how Web3 is going to look. But there’s every chance that blockchain is going to be integral to its development… with a more decentralised, open and user-owned ecosystem.
And we want this country to be there, leading from the front… seeking out the greatest economic opportunities.
The Government is already working with digital regulators to understand what issues will need to be considered in order to achieve maximum benefit for the public.
We’ll also be engaging with you all closely on changes we want to make to the tax system.
On balance, we don’t think the tax code will need major surgery to make it work more easily for crypto.
But we’re going to look at and resolve specific issues like the treatment of DeFi loans and staking. We will be amending the Investment Manager Exemption to remove disincentives to UK fund managers including disincentives to UK fund managers including cryptoassets in their portfolios.
Above all, we want to position the UK as a pro-innovation jurisdiction… which is attractive to inward investment, and to firms who don’t yet have a settled base.
The second thing we have going for us is that we are determined to learn quickly.
The UK already has a strong track record of facilitating experimentation through the FCA’s regulatory sandbox, which has supported more than 50 firms using blockchain.
The FCA have announced today that they will be organising the first of a series of ‘crypto-sprints’ next month, involving scores of industry experts.
The sprints will inform FCA policy thinking in real time, and participants will be tasked with wrangling some of the legal, technical and regulatory challenges the industry faces, and then coming up with practical solutions which, we the government, will take forward as quickly as we can.
We will also deliver the Financial Market Infrastructure Sandbox… which the Chancellor announced last year, and on which we are making very good progress.
The Sandbox – to be run by the Bank of England and the FCA - will allow firms to experiment and innovate in providing the services that underpin markets. In particular, this will enable them to test new technologies that could transform financial markets by delivering greater efficiency, improved liquidity, enhanced transparency, and greater security.
We intend to have this up and running next year. And if it teaches us that we need to update the relevant legislation, then we will do that too.
In the same spirit, we will also be establishing a high-level industry group, the Cryptoasset Engagement Group, to help guide us on the next steps in road ahead.
A direct, open channel of communication
Chaired at ministerial level – with senior representatives from the FCA, the Bank of England as well as from business – it’ll meet up to eight times a year, and have a full and proactive agenda.
Not just talk… talk then determined, concrete action. Informing and accelerating work being done elsewhere, including by regulators…
Our third and final crucial advantage is the leading role the government is going to play.
Unlike the EU and US, the UK has a small number of regulators, and central government sets the overall framework and can take decisive action. So, we can move very nimbly.
And, trust me, we have a determined, unified, single-minded government that is going to prioritise this.
For instance, we’ll be undertaking a programme of work to explore whether it’s possible to apply DLT to the debt issuance process.
Could the UK one day issue a debt instrument using DLT? I don’t yet know the answer … but let’s find out.
And we will lead by example.
We are already effectively using crypto-technologies to make government more efficient. We are developing opportunities to use distributed ledger technology for Customs and International Trade, to ease the import of goods, and we will continue to support further opportunities to deploy that technology.
Finally, I am announcing today that the Chancellor has asked the Royal Mint to create a non-fungible token – an NFT… to be issued by the Summer, an emblem of the forward-looking approach we are determined to take… and there will be more details available very soon.
So Ladies and Gentlemen,
There’s a genuine opportunity to build on our strengths in fintech, seize the capitalist energy which has already made UK financial services what it is… and use it to unleash the potential of crypto-technologies.
It’s not going to happen overnight… much though I appreciate many of you will want it to. But we will get there as quickly as we reasonably and responsibly can.
So what does the future of crypto here in the UK look like?
No-one knows for sure.
But we think that by making this country a hospitable place for crypto we can attract investment… generate swathes of new jobs… and create a wave of ground-breaking new products and services
We’re on the cusp of something important.
We have the opportunity to shape and lead it.
And that is what we’ll do.