Crypto assets and the PSR

20/07/2021

Crypto assets

In this latest thought-piece Genevieve Marjoribanks, Head of Policy, gives some thoughts on the future of cryptoassets and future regulatory considerations.

The cryptoassets market has grown significantly and is now worth £1.6 trillion globally. In the UK, over 2.3 million consumers now hold some form of cryptoasset. With such growth, the UK authorities are looking at how these assets should be regulated. The Payments Systems Regulator is watching these developments with keen interest. 

A few years ago, if someone said the words Bitcoin, Ripple or Ethereum to me, I would most likely have greeted them with a polite smile and a look of curiosity. How times have changed. It seems that cryptoassets continue to be ever present in the media, while regulatory authorities and central banks across the world consider the opportunities and risks associated with these innovations. 

In the UK, the FCA’s recent consumer research indicates that consumer and corporate attitudes towards cryptoassets have shifted. Around 78% of adults have now heard of cryptocurrencies while the average cryptoassets holding has increased to £300. At this stage, those with holdings appear to use cryptoassets as a form of investment, rather than as a method of payment.[1]  

Their potential as a method of payment, however, has received significant attention recently, whether through suggestions that Bitcoin could be used to purchase cars or even become legal tender. As you can imagine, this is of interest to the PSR. 

Despite these developments, at this stage there has not been any widespread use of cryptoassets for payments. This of course may change. We have observed developments in the market ranging from the publication of Diem’s [2] white paper in 2019 where it sets out its intention to launch a payment system with its own currency, to PayPal launching a ‘Buy, Sell and Hold’ crypto-wallet. It appears the direction of travel is towards crypto-based payment systems involving both new and existing industry participants.  

From a PSR perspective, on one hand, we welcome these innovations as they could promote greater competition between payment systems and increase choice of alternative payment options, aligning with the priorities in our recently published proposed strategy 

On the other hand, we want to help make sure that harms don’t come about from cryptoasset use in payments. Cryptoassets can be complex instruments meaning users may not fully understand the risks of using them for payments. For example, if there is no guarantee that the cryptoasset can be converted back into cash, users face the risk of losing their money.  

Naturally, any UK regulatory regime for cryptoassets will involve a range of different facets, including payments. As such, we have been working closely with the other UK authorities via HM Treasury’s Cryptoassets Taskforce [3] (CATF). Through the CATF, and following publication of HM Treasury’s cryptoassets consultation paper earlier this year, the framework for a UK regime is taking shape.  

For now, we will continue to watch and assess how cryptoassets in the payments space develop. As the regulatory regime continues to take shape, we will make further announcements on our approach and expectations of market participants alongside the other CATF members.  

 

Footnotes:

  1. It's important to note that at this stage, cryptoassets are generally unregulated.
  2. Formerly Libra.
  3. Members of the CATF include HM Treasury, the Bank of England, Financial Conduct Authority and Payment Systems Regulator.