UK Crypto Think Tank Warns Government of CBDC Privacy, Security Risks

While there are a "number of potential benefits” associated with central bank digital currencies (CBDCs), the UK government “should carefully consider and seek to mitigate any potential risks" associated with the development and potential introduction of the so-called digital pound."

This is particularly relevant "in relation to financial stability, privacy, and security risks,” the British Crypto and Digital Assets All Party Parliamentary Group (APPG) said in a report Monday.

APPGs are independent, cross-party groups within the UK Parliament that are formed by Members of Parliament (MPs) and Members of the House of Lords to provide insights and recommendations to policymakers.

The report also urged the government to “be careful to ensure that the introduction of any future digital pound does not stifle private sector innovation.”

The 52-page report, entitled “Realising Government’s Vision for the UK To Become a Global Hub for Cryptocurrency & Fintech Innovation,” shares the Crypto and Digital Assets APPG's findings of the inquiry it launched last year into the state of the digital assets industry in the UK.

Led by Dr. Lisa Cameron MP, the Crypto and Digital Assets APPG focuses on discussing and examining issues related to cryptocurrencies and digital assets. As part of the inquiry, the Crypto APPG gathered input from various stakeholders within the industry, such as operators, regulators, experts, and the general public, to gauge their perspectives on the necessity of regulating the sector.

Additionally, the group conducted a series of public evidence sessions in Parliament, where experts provided insights on the crucial factors that must be taken into account for the government to realize its vision for the sector.

UK must 'move' on crypto soon, says APPG

The UK first announced plans to become a “global crypto asset technology hub” in April 2022, with the former Chancellor Rishi Sunak, now the country’s Prime Minister, stating at the time that this strategy was designed to ensure that “firms can invest, innovate and scale up.”

Today’s report is largely backing those plans, saying that cryptocurrencies have the potential to significantly transform the established financial services system, with the increased interest and adoption amongst consumers and investors indicating that “the sector is here to stay.”

However, to achieve that potential, the industry needs comprehensive regulation ”to protect consumers and to ensure guardrails for investment and economic growth."

“A number of countries around the world have moved quickly to develop clear regulatory frameworks and to provide necessary clarity attracting companies to their jurisdictions. The UK must move within a finite window of opportunity within the next 12-18 months to ensure early leadership within this sector,” reads the report.

Correspondingly, the government “should look to create the right conditions to attract inward investment in the UK cryptocurrency and digital assets sector,” says the report, while also urging to support existing businesses so as not to risk losing growth to other jurisdictions.

Still, “the UK still remains in the very early stages of regulation of the industry,” argue the report's authors. “Government should continue to develop a comprehensive framework that provides regulatory clarity which will be a key factor in attracting inward investment in the UK.”

Furthermore, today’s report acknowledged that “while the overall level of economic crime associated with cryptocurrency and digital assets remains a relatively small proportion of overall activity, there remains potential for cryptocurrency to be used by criminals.”

To that end, the government is advised to “adopt a proportionate and risk-based approach to addressing any potential risks and seek to establish a strong evidence base in relation to economic crime to inform its regulatory response.”