The United Kingdom is paving the road for cryptocurrency services, courting startups and established players alike while leading the way in pioneering regulation on stablecoins and nonfungible tokens.
But a lot has changed. After two years of deliberations, European Union lawmakers achieved agreement on the Markets in Crypto-Assets (MiCA) regulation, marking a pivotal moment for harmonized supervision of the sector on such a scale. This followed United States President Joe Biden’s executive order recommending a whole-of-government approach toward the responsible development of digital assets within the United States.
The U.K. has also seen major political shifts during this period, including the resignation of Treasury Minister John Glen, whose April speech supporting the industry represented the most emphatic from a U.K. official to date.
While Glen was broadly supportive of a regulated and nurturing framework for the sector, other U.K. institutions have voiced concern about the safety and viability of cryptocurrency. In fact, on the same day as Glen’s speech, Bank of England Governor Andrew Bailey called the crypto market an “opportunity for the downright criminal.”
It’s precisely this sort of mixed messaging that could hinder the industry’s development just as the starting pistol is fired. Uncertainty breeds stagnation. Evidence suggests that a lack of regulatory clarity has already put the brakes on the wide adoption of cryptocurrency by consumers.
The industry will not be able to enjoy any comfort until regulators align their thinking.
With a new prime minister and government on the horizon, it is vital that whoever takes up residence at 11 Downing Street unifies the government’s position with the Bank of England and the country’s regulators so that the U.K. can become a true leader in innovative technology and standards setting.
The crypto sector has reached a point where it is both achieving global recognition as an incubator for fast-moving financial technology and missing out due to inconsistent approaches.
Facing a crunch point in the race for global crypto leadership
The crypto market holds approximately $1 trillion in value. That figure will increase as consumer and commercial adoption grow, creating jobs, improving financial inclusion, and providing fresh alternatives to legacy systems in the financial services sector.
The U.K. is one of Europe’s leading fintech hubs and finds itself in a fortunate position, equipped with the infrastructure, investment and talent to champion the crypto industry. But in order to cement this position, it needs to continue to attract best-of-breed challenger financial services brands. To achieve this, it must take a decisive and unilateral stance on cryptocurrency — consistent with the points delivered by Glen — that shows it is the home for building and growing innovative digital asset companies. After all, effective financial regulations exist to protect consumers without stifling innovation that ultimately benefits them.
This isn’t to say that Bailey’s concerns regarding the possibility of crypto being used for illicit activity are unwarranted. But addressing this point should not preclude the U.K. government from demonstrating it is not fearful of new technology and the positive changes crypto specifically is capable of delivering.
To that end, Glen’s statements regarding the delivery of a financial market infrastructure sandbox and the establishment of a crypto-asset Engagement Group are welcome steps that we believe will allow the U.K. to continue to serve as a leader in this space in active collaboration with the industry.
The value of having a unified approach to crypto regulation
Taking a single unified approach to crypto regulation is also important. With MiCA, the EU is setting the bar and must be applauded for demonstrating the benefits of a unified approach to crypto regulation.
As the U.K. considers additional regulation in this space and the newly introduced Financial Services and Markets Bill makes its way through parliament, it would behoove the U.K. to build on the EU’s approach with MiCA, working with industry and consumers alike to discourage uncertainty and doubt.
UK Govt has today published 330 page long Financial Services and Markets Bill.
It will roll back many post-crash reforms, including capital adequacy rules.
Impose a duty of competitiveness on the regulator – effectively a race to the bottom.
This won’t have a happy ending.
— Prem Sikka (@premnsikka) July 21, 2022
Similarly, the upcoming consultation on the government’s approach to crypto assets represents a good opportunity for policymakers to hear from the industry about how to best build the regulation that will protect businesses and consumers while empowering innovation to thrive.
Of course, building regulation is only one part of the puzzle. Communicating government policy to those subject to regulation is as important as policymakers understanding the industry they are regulating. To that end, robust public-private collaboration is vital to adapt financial regulations to new technologies.
Only through a unified approach to crypto regulation will businesses have the confidence that they are operating in a market where the authorities are fully invested in the success of the sector, and consumers can feel protected by effective regulatory oversight.
To mitigate the current period of economic uncertainty, the U.K. will need to rely more heavily on its flagship industries, such as fintech, to drive growth, create jobs, and help the country to “Build Back Better.” To achieve this, it needs to encourage innovation in digital assets underpinned by a resilient and comprehensive regulatory framework. At this early stage, when a number of nations are seeking to grab the crypto crown, the U.K. cannot afford to allow mixed messaging to stymie its crypto ambitions.