“Pro Innovation” AI Regulation Planned by UK While Crypto Legislation Remains Tough on Platforms
Bim Afolami said the UK could put forward new crypto regulation by June, but the government's anticipated AI legislation is expected to take much longer. Photo by Lucy North/PA Images via Getty Images.
Key Takeaways
- The UK is drafting new legislation to regulate AI.
- Meanwhile, the country’s regulatory framework for crypto could be ready by June.
- On both fronts, the government claims it is pursuing a “pro-innovation approach.”
This week, it was reported that the UK government is preparing to issue 2 new pieces of legislation: one oriented toward crypto regulation and the other designed to govern AI models.
In both areas, lawmakers hope to strike a balance between fostering innovation and protecting consumers. But the government’s focus on innovation appears to be more weighted toward AI than cryptocurrency.
UK Preparing New AI Regulation
According to a recent Bloomberg report, policy writers at the Department for Science, Innovation and Technology have started to draft new AI regulations and the government could start consulting on a potential AI bill later this year.
While the UK’s EU neighbors adopted the far-reaching AI Act last month, Prime Minister Rishi Sunak has previously said he would not “rush to regulate” the technology.
“This is a point of principle, we believe in innovation,” he told the AI Safety Summit last year. “How can we write laws that make sense for something that we don’t yet fully understand?”
Commenting on the recent news, a spokesperson for the prime minister reiterated the point:
“We’ve always been clear that all countries would eventually need to introduce some form of AI legislation,” he said. However, he noted that the government doesn’t intend to rush it through.
A “Pro-Innovation” Approach
For insight into what any future legislation might look like, the government’s 2023 policy paper , A Pro-Innovation Approach to AI Regulation provides the clearest picture so far.
The paper argues for a light-touch approach to regulation that won’t overly burden the UK’s AI sector. Ideas floated include the use of regulatory sandboxes that will let firms explore novel technology applications without the compliance burden of full-scale market deployment, and “proportionate” reporting requirements for startups and small businesses.
Reflecting a rhetorical emphasis that has been central to the last 14 years of Conservative rule, the paper follows a regulatory playbook that has also helped shape the UK’s approach to crypto.
For example, consider the foreword to a report outlining the government’s plans for the new crypto asset regime:
“We must make the UK a place where crypto asset firms have the clarity needed to invest and innovate […] the UK is the obvious choice for starting and scaling a crypto asset business.”
Crypto Regulation Rapidly Advancing
From sandboxes to tiered reporting requirements that favor startups, there are many commonalities between the government’s approach to crypto and AI. Yet there is one crucial difference between the 2 regulatory frontiers. Compared to the no-rush, wait-and-see approach taken to AI, UK crypto regulation is moving ahead at full steam.
It has taken years to lay the foundations – the 2023 Financial Services and Markets Act (FSMA ) – but now, the government could put forward a full regulatory framework for the space as early as June.
“We are now working at pace to deliver the legislation to put our final proposals for our regime in place,” Economic Secretary Bim Afolami said at the Innovate Finance Global Summit on Monday.
Just a year after the FSMA made the first-ever reference to crypto assets in UK legislation, once the new framework is in place, crypto exchanges, custodians, staking services and stablecoin issuers will all be brought within the regulatory perimeter.
But even without dedicated legislation in place, UK-based investors have already felt the effects of emerging crypto regulation.
Regulation Limits Options For UK Investors
With only a handful of crypto exchanges currently sanctioned by the Financial Conduct Authority (FCA), investors in the UK have found their options increasingly restricted.
In October, Binance stopped accepting new UK users and has struggled to navigate its re-entry into the market ever since.
Are my fellow UK crypto enthusiasts getting a bit fed up too (with regulations, not nexo)
byu/MoneroIsMoneyy inNexo
Similar restrictions have been imposed by HTX, Bitfinex, KuCoin and others, which have been unable to meet the FCA’s registration requirements.
The regulator has told UK investors they “should stay away” from 143 crypto exchanges added to its warning list of unlicensed firms.
Innovation in AI and Crypto
For all the government’s talk of establishing the UK as a “crypto hub,” the current situation is hardly ideal for retail investors.
Far from supporting small businesses, the new regulatory environment directs the bulk of UK trading activity to Coinbase and Kraken. In turn, this reduces competition and could end up inflating fees for users.
As the government makes its first tentative steps toward regulating AI, the credibility of its “pro-innovation approach” should also be measured by results rather than rhetoric.
The point isn’t to accuse the government of spewing hot air. Rather it is that legislation is only the first step in regulation.
Regulators in the UK are powerful and have a large degree of discretion when it comes to enforcement. The FCA has made things difficult for crypto firms because it prioritizes consumer protection over consumer choice (and anti-money laundering above all else).
British lawmakers must now decide what their priorities are, what new powers they wish to grant regulators, as well as who and what they will regulate. Before we know these, its claims of being pro-innovation remain empty gestures.
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