In a speech on regulations and international competition, Victoria Saporta, Executive Director of Prudential Policy, commented on PRA’s new secondary objective – enabling international competitiveness and growth.
PRA, or the Prudential Regulation Authority, is part of the Bank of England and oversees 1500 banks and insurance firms in the UK. As part of forthcoming legislation, the PRA will be expanding its portfolio to include supporting competition to boost the UK’s position as a global financial center.
In the speech, Saporta said that “good regulation is a good foundation for success” and that simplifying the “labyrinth of regulations” will aid the pursuit of innovation. The effectiveness of the PRA helps to buttress the UK’s success, including regulatory authorisations for innovative firms. As part of the outlined mission, Saporta noted that the PRA will be writing rules for crypto or digital assets.
“I should reassure you that stable and predictable regulation doesn’t mean static regulation. Innovation is one of the UK’s strengths. For that reason, I believe our rule-making must incorporate a dynamic digital regulatory agenda that maintains safety without stifling innovation. We published a discussion paper about financial firms’ application of artificial intelligence last year – you can expect to see more from us about this. We will also be proposing rules about issuing and holding digital assets.”
This aligns with the UK’s ambition to emerge as a top center of digital asset innovation – a goal that supports the UK’s current status of being a top Fintech hub.
Katharine Wooller, Business Unit Director at Digital Asset Protection firm Coincover, commented on the speech by Saporta, which was critical of the UK’s efforts to date. Wooller described regulatory reform in the UK as “woefully lethargic” and behind other jurisdictions such as Europe and its MICA regulation.
“Whilst at [the] government level we have numerous promises, the reality of coherent and proportional regulatory frameworks for those firms keen to “do the right thing” is very different. The PRA’s recent announcement that regulations will be proposed on crypto issuing and holding have an objective to “harness the UK’s strengths as a global financial center and maintain trust in the UK as a place to do business”. Whilst there is a careful balance to provide institutional investors and retail consumers alike with protection, this cannot be at the expense of innovation. Despite the best efforts of trade bodies like Innovate Finance and Crypto UK, we are at a serious risk of behind left behind,” said Wooller.
She said that regulators have been slow to act and they should take some responsibility for the disasters, such as FTX, in recent years. These debacles have been due to a “vacuum of rules.”
“Ironically, in the meantime, good progress is being made by the industry to set its own standards – good actors are willingly publishing independent audits, which would prevent another FTX, and many firms are using protective measures against loss – for example in providing technology with Lloyds of London insurance against hacking and theft,” said Wooller. “Regulation can help to rebuild trust, but only if words are met with actions.”
Wooller bemoaned the “lack of governance and security standards” that affect digital asset firms adding that digital assets are part of the solution and not part of the probe as “a trustless immutable database is of huge interest for reducing the cost of payments, increasing inclusion, and creating a borderless financial system.”
“The interest in Central Bank Digital Currencies, currently being explored by 90% of central banks, including the Bank of England, sits uneasily with regulators’ reluctance to provide regulatory clarity to the crypto industry. A mutual distrust has characterised the relationship between regulators and firms – now Is the time to move forwards with a coherent framework to allow the industry to reach its full potential,” Wooller stated.
While Wooller may be disappointed in the lack of digital asset rules if she looked across the Atlantic at the US and its regulation-by-enforcement approach, she may feel more encouraged by the UK’s direction in regulating crypto.