Question to the HM Treasury:

To ask His Majesty's Government what assessment they have made of the (1) operation, (2) benefits, and (3) risks, of (a) Non-Fungible Tokens (NFTs), and (b) the wider blockchain.

The Government established a Cryptoassets Taskforce in 2018, consisting of HM Treasury, the Bank of England and the Financial Conduct Authority (FCA). The Taskforce’s objectives include exploring the impact of cryptoassets, the potential benefits and challenges of Distributed Ledger Technology (DLT, which includes blockchain technology) in financial services; as well as monitoring ongoing developments in cryptoasset markets.

These crypto technologies could have a profound impact across financial services, including reducing risk, working capital, and disintermediating friction. However, there are also associated risks. As the Bank of England’s Financial Policy Committee noted, as crypto technologies grow and become more interconnected with the core financial system we’ll need to ensure that regulators have the right tools to manage the associated risks. That is why the Government is taking forward a number of regulatory initiatives to manage risks and support innovation so that people and businesses can use new technologies both reliably and safely.

The Government is putting in place a Financial Market Infrastructure (FMI) Sandbox, which will enable firms to experiment with the use of new technologies like DLT in providing the services that underpin financial markets. The Government is also exploring the possible use of DLT in the issuance and lifecycle of a sovereign debt instrument. Further details on this research programme will be set out in due course.

The non-fungible tokens (NFTs) market is evolving rapidly and remains at an early stage of development. Most NFTs are not currently subject to financial services regulation in the UK and the Government has proposed to exclude them from the financial promotions regime on the basis that NFTs can represent a wide array of different assets which might constitute non-financial services products. The Government will continue to closely monitor how NFTs are used in financial services and take further action if necessary.