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The UK’s new City minister and Treasury secretary has told Vixio he recognises the strength of public opposition to a digital pound, but does not think that should derail the project.
Last week, Bim Afolami appeared as a keynote speaker at the Payment Services Regulatory Compliance Forum in London, an event hosted by financial services consultancy Cosegic.
After being appointed City minister and economic secretary to the Treasury in last month’s Cabinet reshuffle, Afolami laid out some of his plans and priorities for financial services regulation.
Due to a likely general election in 2024, or January 2025 at the latest, the minister acknowledged that he may not have as much time as necessary to bring these plans to fruition. However, he said he will be “laser-focused” on what can be achieved in the “coming months”.
For example, Afolami said the Treasury and Bank of England (BoE) will continue to study both wholesale and retail central bank digital currency (CBDC), and will consult further on “what that might look like”.
Retail CBDC resistance
Asked by Vixio how the government will respond if the public is strongly against a retail CBDC, Afolami said that all views will be “taken into account”.
“I read in immense detail the responses to the consultation on the digital pound, which on the retail side were very negative,” he said.
“I have noted that very strongly and I've spoken to the governor of the BoE. My view is that we have to be very, very careful of what people say in these consultations, because, otherwise, what is the point in having one?”
However, when asked if public opposition to a retail CBDC would stop the project in its tracks, Afolami said: “No, I don't think you should go that far, but I do think that one has to strongly consider what is said in those consultations.
“What I'm trying to say is that we are trying to take fully into account what people say, and trust me, we will, because there's no point in doing consultations if you ignore what people say.”
In July, as covered by Vixio, the BoE revealed that it had received more than 50,000 responses to its opening consultation on the digital pound.
Vixio could find only three other public consultations that generated more responses, including one on COVID-19 vaccination requirements for NHS staff and one on Heathrow’s third runway expansion.
In a separate conversation in March, Vixio put similar questions to William Lovell, the head of future technology at the BoE.
Like Afolami, Lovell said that lack of public support for a retail digital pound should not stop its development.
“I want to stress that we haven’t made a decision yet,” he said, adding that “I don’t think that’s where we are going to end up.”
Earlier this month, in a new report from the cross-party Treasury Committee, UK MPs offered a lukewarm reception of a retail CBDC and were keen to highlight its risks.
The report urged the BoE to “proceed with caution” in its exploration of CBDC, noting that any future issuance of CBDC must be “underpinned by clear cost-benefit analysis”.
An ‘obligation’ on economic growth
CBDC was not the only agenda item that Afolami covered during his Cosegic appearance. He also spoke about his plans to ensure that UK financial regulators have an “obligation” to orient themselves towards economic growth.
Afolami expanded on this theme in a newsletter, also published last week, to his constituents in Hitchin and Harpenden.
“I firmly believe that our regulators need to be more comfortable with the necessity of risk-taking,” he said.
“Risk, as long as it is watched and supervised in the public interest, is integral to the growth and innovation of our economy.”
No matter what area of the economy a regulator supervises, there is “no point having the safest graveyard”, he said.
“We must encourage innovation and drive growth, balanced against effective regulation which protects consumers,” said Afolami.
“However, this doesn't mean deregulation — it can also mean simplification, greater accountability and redistribution of powers.”
At the Cosegic event, when asked about regulatory impediments to growth, Afolami gave the example of authorisations by the Financial Conduct Authority (FCA).
Afolami said he “strongly agrees” that FCA authorisations currently take too long to get from application to resolution, and that needs to change.
He, therefore, said that he will be announcing new measures to make sure the FCA is “held strongly to account” on authorisations, as well as “many other” FCA tasks.
Not deregulation, but reform
Prior to becoming Treasury secretary and City minister, Afolami said he benefited from his time as chair of the Regulatory Reform Group.
Founded by Afolami in January, the group is focused on generating new ideas for regulatory reform, but has been mischaracterised as a force for deregulation.
The ethos of the group is not to “get rid of all the regulations and have a bonfire of red tape”, he said.
Such an approach is not in the interest of consumers, and even in cases where deregulation is pursued, it is often reversed immediately as soon as its architects are out of government.
In the group’s founding statement, Afolami said it aims to provide practical solutions to help create a regulatory framework that is “pro-innovation, pro-investment and will help the UK to become a globally more competitive economy”.
At Cosegic, Afolami was asked whether this would mean he personally supports a reintroduction of the post-Brexit passporting regime for financial service firms between the UK and EU.
Afolami replied that his personal stance on passporting is irrelevant if reintroduction is not offered by the other side.
“Obviously we want access to every single financial services market all the time, as much as possible for all of our firms,” he said.
“But the question is: how does that work with the other jurisdictions?”
