Binance Security Breach: Consumer Exposure and Interim Safeguards

Tuesday 3rd November 2026 Lords Chamber

Question

15:23

Asked by

[Lord Nagaraju]

To ask His Majesty’s Government, in light of the security breach at Binance, what assessment they have made of the exposure of UK consumers to that incident; and what interim cybersecurity safeguards they plan to introduce before the new cryptoasset regulatory regime takes effect in October 2027.

[Lord Nagaraju (Lab)]

My Lords, I declare my interests in AI and technology as set out in the register, and I beg leave to ask the Question standing in my name on the Order Paper.

[The Parliamentary Secretary, HM Treasury (Lord Pitt-Watson) (Lab)]

I welcome this Question. The Government are closely monitoring developments following the Binance security breach and are engaging with the Financial Conduct Authority and other authorities to assess the implications for the UK. Binance is not authorised or registered to provide crypto asset services to the UK. However, it is possible that UK customers may still have been affected, and the Government are currently working to understand the associated impacts and risks.

[Lord Nagaraju (Lab)]

My Lords, given that a large number of UK consumers engage with crypto assets and that the new regulatory regime will not take full effect until October 2027, will the Minister commit today to working with the FCA, the National Cyber Security Centre, the Bank of England and other relevant authorities to put effective transition arrangements in place now and publish a clear interim cyber security and consumer protection plan with a timetable before the end of this year?

[Lord Pitt-Watson (Lab)]

We are looking to learn from what happened at Binance, but I am not clear that it makes sense to put in an interim arrangement. By October next year, we will have a comprehensive FCA regime for crypto assets, including disclosure, market abuse and resilience. To put that in place requires changes by the firms, and it then requires authorisation. There will be an iterative process there, and I think it might not be helpful to have an interim regime in the middle of that. It would perhaps slow things down.

[Baroness Kramer (LD)]

My Lords, the hacking of Binance demonstrates that large-scale theft is far more possible in a crypto world. At present, UK banks are resisting providing accounts, financial services and credit lines to crypto service providers, but that is expected to change in the next year when the FCA’s crypto providers authorisation scheme kicks in. What would be the consequence to bank stability of such a heist happening after that authorisation and the relationship created between the banks and the crypto world? Would the banks be covering the losses? It is certainly unclear who is covering the losses now.

[Lord Pitt-Watson (Lab)]

I am not quite sure what heist the noble Baroness has in mind. We can say that, right now, the Financial Stability Board does not believe that crypto assets are a systemic risk to the financial system, but if she would like to write to me with her thoughts on how this heist might come about to affect one of the large banks, I would be very interested to read that.

[Lord Ranger of Northwood (Con)]

My Lords, I bring to the attention of the House my registered interests in AI businesses and digital assets.

Digital assets operate across borders, as do cyber security threats, as we have seen in the issue with Binance. Given the considerable progress being made internationally on regulatory co-operation, does the Minister agree that there should be an increased amount of discussion about that co-operation on regulatory compliance? Also, does the Minister agree that the Government should commit to making digital assets a security and regulatory priority as part of our G20 presidency next year?

[Lord Pitt-Watson (Lab)]

Digital assets and cryptocurrencies are two related things. As regards digital assets, this is something that the Government are promoting through our industry group with Chris Woolard. He has been quite successful in thinking how we do that safely and well to make the UK a centre that can take advantage of digital assets and tokenisation.

[Lord Alton of Liverpool (CB)]

My Lords, will the Minister ask his officials to provide for him a copy of the House of Lords Written Question HL4338 from December 2017? That contained warnings about the ability of North Korea to hack cryptocurrency and to commit cyber robbery—2017 being the year of the attack by North Korea on our National Health Service. Will the Minister ask his officials what notice was taken of those warnings? In light of the evasion of sanctions and the recycling of revenues into nuclear weapons and ballistic missiles programmes, what progress is being made in tracing the stolen assets and identifying those responsible? Will the Minister agree to meet the officers of the All-Party Parliamentary Group on North Korea and the All-Party Parliamentary Group on Crypto and Digital Assets?

[Lord Pitt-Watson (Lab)]

I would be very happy to meet, but I wonder whether there is a misunderstanding here. Binance, which is the institution that has been hacked, is not authorised in the UK. It is not registered in the UK; it is a foreign entity. While I am sure that there will be lessons to be learned from the issues that the noble Lord is talking about, what happened with Binance did not happen under any registration in the UK.

[Baroness Neville-Rolfe (Con)]

My Lords, this incident shows that society as a whole faces very serious risks from cyber crime and that lessons need to be learned, as the Minister has said. I know that the Minister is concerned about financial education. Will he use his influence to ensure that the prevention of fraud in all its aspects, including cyber crime, plays a full part in plans to improve financial education?

[Lord Pitt-Watson (Lab)]

I would be more than happy to do that, and to do it jointly with the noble Baroness.

[Lord Vaux of Harrowden (CB)]

My Lords, the Government are issuing digital gilt instruments, and I believe that the first trades are expected to happen in Q1 of next year. What lessons are we learning in terms of the security for DIGIT from this hack?

[Lord Pitt-Watson (Lab)]

The DIGIT is a digital gilt instrument which we are experimenting with. The hack, of course, was to an exchange, which is rather different, so I am afraid I do not have an answer to that question. If the noble Lord would like, I could write when the evidence is in about what happened on Binance and any relevance it might have for DIGIT.

[Lord Fox (LD)]

My Lords, to help the Minister’s bewilderment at my noble friend Lady Kramer’s question, he is right to say that Binance is not registered in the United Kingdom at the moment. But under the conditions of change, as outlined by my noble friend, there is every reason to believe that Binance or an equivalent organisation will be registered after the changes next year. Her question was: in the event of that, how would such a theft be dealt with? Would it be by the banks or the exchange, and where would the Government and the Bank of England sit in that position?

[Lord Pitt-Watson (Lab)]

I do not know the details of what happened at Binance, but my understanding is that the money came from custodial operations at the exchange itself, not from a bank. Perhaps I could get back to the noble Lord if I am wrong on that.

[Lord Bellingham (Con)]

My Lords, following the question asked by the noble Lord, Lord Alton, the Minister will probably be aware that yesterday the US Treasury announced that it had overwhelming evidence that it was rogue North Korean state actors who perpetrated this appalling fraud. Given the number of UK investors in this particular exchange, what can he and his department do to work with the US Administration to pursue this?

[Lord Pitt-Watson (Lab)]

I am not sure that we know how many UK investors there were because, as I say, Binance was not authorised or registered to provide crypto asset services to the UK. But when we discover that, which we are looking to do today, I am sure we will want to co-operate with all regulatory authorities in making sure that this cannot happen again.

[The Earl of Kinnoull (CB)]

My Lords, North Korea has form in attacking financial markets to fund its foreign currency requirements. It attacked the London reinsurance markets 15 years or so ago, when there were heavy losses for London reinsurers and losses for German reinsurers. This is a pattern of attack by North Korea. Can the Minister tell us whether we are co-operating internationally, not just with the Americans but with the Germans in this instance, to try to make sure that we can stamp out this abuse by North Korea?

[Lord Pitt-Watson (Lab)]

Indeed we are. We have been taking some powers to trace, seize and recover, and we have been getting financial institutions to do more about disclosure and know your customers. I am not aware of the specific conversations that we have had with individual countries, but if that is of particular interest to the noble Earl, perhaps I can write to him.