A country distancing itself from its neighbors and hardening its borders – as the U.K. has done with Brexit – might sound like a perverse thing to do, especially from the perspective of those in the borderless, 24/7 world of cryptocurrency.
However, some lawmakers see an interesting post-Brexit play for Great Britain amid crypto’s evolving patchwork of regulation. A recently convened group of U.K. parliamentarians, harking from across the political spectrum, may signify the first steps in a new direction.
Lisa Cameron, a member of Parliament for the Scottish National Party (SNP) and the chair of the Crypto and Digital Assets All-Party Parliamentary Group (APPG), points out that Brexit was not her choice (over 60% of Scottish voters opted to remain in Europe). But with her cross-party crypto hat on, Cameron says it’s time to start exploring the potential benefits of Brexit – namely, “being able to chart your own path.”
“In terms of this particular field [crypto], I think it could be exciting – harnessing that for our economy, and for young people coming forward, young people doing coding at school,” Cameron said in an interview with CoinDesk.
Independent trade body CryptoUK is the secretariat of the APPG, meaning the office entrusted with administrative duties. Other parliamentary vice-chairs include Harriett Baldwin (Conservative), Martin Docherty-Hughes (SNP), Alexander Stafford (Conservative) and Lord Taylor of Warwick (non-affiliate). Also involved are Lord McNicol of West Kilbride (Labour), Bell Ribeiro-Addy (Labour), Lord Vaizey of Didcot (Conservative), Philip Davies (Conservative) and Simon Fell (Conservative).
The ad-hoc, non-partisan alliance arrives at a time when U.K. authorities are cracking down on areas like crypto advertising, with some fearing that the U.K. has lost its financial innovation crown.
The U.K. was smart about opening up its world-famous banking center to innovators in the years following the 2008 financial crash and has historically been a leader in financial technology or “fintech.”
But more recently, Britain has been lagging behind, particularly when it comes to crypto, according to some industry watchers.
Back in 2016, the fintech movement was going strong thanks to the U.K.’s advantageous policies, but that’s arguably no longer true, says Simon Taylor, co-founder of financial consultancy 11:FS. He said there has been little meaningful effort to increase competition or support new products coming to market.
Meanwhile, the U.S. is seeing $100-billion-valuation fintech firms going public, Taylor said, adding that “the global race has started and the U.K. is getting left behind.”
When it comes to crypto, some of the blame for this is being laid at the door of the U.K.’s Financial Conduct Authority (FCA).
“I’ve generally been disappointed by the U.K. posture towards fintech and crypto, which strikes a more negative tone,” Taylor told CoinDesk via direct message. “Crypto companies in particular have told me the FCA is overwhelmed with registration requests, but also they’re unable to continue business without the new registration in the U.K.”
He pointed to markets like Singapore and the United Arab Emirates that have developed sophisticated frameworks and invested in being responsive to the industry while managing risks to consumers.
“The U.K. has focused only on risk, and perhaps missed the big picture,” Taylor said.
An FCA spokesman told CoinDesk via email that the regulator needs to be assured firms’ managers are fit and proper and they have the systems to properly manage financial-crime risk.
“Firms can help us by submitting complete, high-quality applications. If they do not, delays are likely and firms ultimately won’t meet the bar for registration,” the spokesman said. “Through initiatives like the sandbox, where firms have safely tested blockchain-based services, the FCA has demonstrated high, consistent standards to build trust in innovation.”
For her part, APPG chair Cameron says she’s also been given a sense that the U.K. has fallen behind in terms of crypto innovation, which she said was “unacceptable.”
“We need to ensure that regulation keeps pace with the rapid advancements in technology,” Cameron said. “We want to see a clear regulatory framework for crypto and digital assets in the U.K. Countries around the world are currently reviewing their approaches to crypto regulation and we want the U.K. to remain competitive as a place for crypto businesses and not lose out to other more favorable regimes overseas.”
Across Europe, there are 27 member states doing their own thing regarding crypto, guided by agencies such as global anti-money laundering watchdog, the Financial Action Task Force (FATF). So, Germany’s BaFIN might be perceived as relatively crypto-friendly, while French regulator AMF may be less so, and so on.
However, a blanket approach is coming out of Brussels, the bureaucratic nerve center of the European Union. The Markets in Crypto-Assets (MiCA) framework, an all-encompassing attempt to harmonize virtual asset services in the EU, is expected to come into force in the next two years.
We will lose a lot of innovators in the U.K. if this FCA rhetoric continues.
While MiCA has been broadly well-received, the U.K. isn’t forced to implement it, thanks to Brexit – and that’s a good thing, says Ian Taylor, executive director of CryptoUK, and a driving force behind the cross-party governmental group.
As such, the U.K. can continue to follow a piecemeal approach to crypto regulation, with things like AML, advertising and the treatment of stablecoins receiving close, crypto industry-specific attention, Taylor said.
When it comes to the technical detail of regulation around stablecoins, for instance, the U.K. could choose to help foster innovation in areas like decentralized finance (DeFi) by allowing algorithmic stablecoins to exist in a category of their own, like utility tokens, Taylor added.
Returning to the question of the U.K.’s current regulatory climate, Taylor said it’s something of a “Catch 22” since the presence of a trusted and respected regulator like the FCA is one of the reasons firms might choose the U.K. over, say, UAE. However, the current rhetoric needs to change, he added.
“We will lose a lot of innovators in the U.K. if this FCA rhetoric continues,” Taylor said in an interview. “Right now the word on the street is don’t set up in the U.K., because you’re never going to get through the regime. And that’s a key piece of education that we’ve got to bring to Parliament.”