Right-sized quantum regulation is key to retaining UK firms, talent
A senior peer warns domestic quantum firms risk the same fate as ARM and DeepMind without stronger state backing
The question of whether quantum technology should be regulated has become one of the more persistent distractions in British technology policy. The real debate, one senior legislator argued this week, is not whether to regulate but how.
The United Kingdom has a proven model to draw on. Its fintech regulatory sandbox, developed with the Financial Conduct Authority (FCA) in 2016, has since been replicated in nearly 100 jurisdictions, many of which have taken the concept further than its originators. The lesson for quantum, the argument runs, is that intelligent regulation does not slow industries down; bad regulation does.
“Regulation can stifle, stop and crush innovation and development, but that is bad regulation. Right-size, right-touch regulation is not only not a stifler, but it is also a positive partner for growth, innovation and investment, and good for citizens, our companies and our countries,” said Lord Holmes, Member of the UK House of Lords.
“We developed the fintech regulatory sandbox with the FCA in 2016. Measure of success: replicated in just shy of 100 jurisdictions around the world, many of which have taken it further than us,” he said.
Lord Holmes drew a pointed contrast with the European Union’s approach to artificial intelligence (AI). He said the EU AI Act was bold and ambitious in its aims but overly prescriptive in its design, and had already caused difficulties early in its legislative journey. That experience, he argued, is precisely the cautionary tale that quantum policymakers must absorb before reaching for statute books.
“Principles-based, outcomes-focused regulation over prescription will always be problematic. Over-prescription will always stymie and potentially kill off innovation,” he said.
Among the principles Lord Holmes identified as most critical, interoperability stood out. He said it must be understood not only in technical terms but in regulatory and legislative ones.
A quantum framework built for the UK in isolation, without regard for how it sits alongside rules in the US, the EU, or Asia, risks creating friction that undermines the very competitiveness it is designed to protect.
He said the government’s most underestimated tool at this stage is not legislation but the power of signaling: conveying intention through narrative, convening power, purchasing power and acting as a good first customer for quantum products.
“Not passing a single regulation necessarily at this stage, but signaling intention, direction done through narrative, but also done through convening powers, purchasing powers and being a good first customer,” he added.
Cryptography clock
Lord Holmes was speaking at Commercialising Quantum Global 2026, organised by Economist Enterprise in London on June 17. His address focused on the role of regulation in scaling the UK’s quantum industry and the policy decisions policymakers must begin making now.
A Conservative peer and long-standing advocate for technology law, Lord Holmes has championed regulatory reform across sectors including financial services and digital identity. At the conference, he turned his attention to post-quantum cryptography (PQC) as an immediate and concrete test case for regulatory clarity.
The absence of government guidance on PQC is already flowing into private contracts. He noted that in legal agreements, particularly third-party outsourcing contracts, clauses on quantum cryptography are being inserted not because of any settled standard but because uncertainty leaves the contracting parties to absorb the risk themselves.
“We are already seeing this in legal contracts, particularly in third-party outsourcing contracts, where terms are going in around this whole issue. They are going in place because of current uncertainty, but what that means in reality is the risk is being borne by the contracting parties,” he said.
He said that some institutions choosing to self-regulate on PQC may gain a competitive edge, or simply find themselves over-regulated with no advantage at all.
On the question of mandation, Lord Holmes said the UK must consider what happens if the US moves further and faster, leaving British businesses stranded between domestic ambiguity and foreign standards. He offered “longer keys” as a potentially controversial alternative worth examining.
He said the absence of scientific certainty is not in itself a reason for regulatory or statutory uncertainty.
“It does not mean we need to reach for hard, gilt-edged regulation, but it does mean that signaling, that discussion, that engagement for government and regulators with businesses to learn and to be part of the journey together,” he said.
The same question of regulatory ambition runs through the thornier issue of protecting domestic quantum companies from foreign acquisition. He invoked two of Britain’s most cited technology exits to frame the sovereign risk of getting this wrong.
ARM was founded in Cambridge in 1990 as a joint venture between Acorn Computers, Apple and VLSI Technology; it was acquired by Japan’s SoftBank in 2016 for approximately £24 billion. DeepMind was founded in London in 2010 by Demis Hassabis, Shane Legg and Mustafa Suleyman, and acquired by Google in 2014 for a reported $500 million. Both companies retain UK headquarters but are no longer British-owned.
“If we imagine what happened with ARM and DeepMind, if we still had them as UK businesses, that would be a key part of our UK sovereign AI capability,” he said.
But Lord Holmes was careful to frame the issue as a dilemma rather than a directive. Telling UK quantum businesses they cannot sell to overseas buyers, he said, requires the government to put a credible alternative on the table: domestic sources of capital and a growth roadmap that makes staying at home commercially rational. Without that, protective legislation becomes a constraint rather than a shield.
“It is one thing to put legislation and regulation in place to say we are going to protect these companies, but if that means protecting them and not enabling them to get to the size, the scale, the opportunity, I am not sure that in any sense would be a good regulatory intervention,” he said.
Engage now, legislate later
Lord Holmes made it clear that he is not calling for sweeping quantum legislation. What he is calling for is earlier and deeper engagement between regulators and the industry they will eventually govern, well before formal frameworks become necessary.
“In no sense am I suggesting it is time to bring about a huge piece of cross-cutting quantum legislation. What we need is early regulatory engagement, so regulators, policymakers and special advisors get alongside quantum businesses, quantum funders and the entire ecosystem to see what elements can be developed at this stage,” he said.
Alongside formal regulatory engagement, Lord Holmes identified a set of non-legislative tools that governments consistently underestimate. Convening power, purchasing power and acting as a first customer are all instruments of industrial policy that can shape a nascent market without requiring a single statute to be passed. He said the danger is that governments mistake the absence of ready-made legislation for a reason to stay on the sidelines.
“It is critically important for governments not to think that because quantum is not quite at that level for cross-sector regulation, they should not get involved. They should get fully involved, to understand all of those emerging issues,” he said.
He also pointed to the talent dimension of quantum regulation, noting that quantum sits primarily within the science department but carries implications across many parts of Whitehall. Home Office immigration rules, he said, are as directly relevant to the sector’s growth as any technology-specific policy, and tweaking them to attract and retain overseas researchers must be part of the regulatory conversation.
“What do we need in terms of tweaking regulations to enable talent not only to flourish in this country but the talent that we can attract from overseas?” he said.
He closed by anchoring the entire regulatory debate in human stakes, asking his audience to imagine a single patient, a decade from now, whose Parkinson’s disease has been transformed by quantum-enabled drug discovery. That individual represents the opportunity visible in a grain of sand.