By Daniel Lanyon on Friday 25 November 2022
Long-awaited crypto regulation in the UK seems to be gaining traction, but Rishi Sunak’s bold ambitions to make the country a preeminent hub for ‘crypto asset technology’ comes at a time of similarly growing disdain for an industry reeling from the collapse of FTX.
It’s been just under eight months since the UK government (of the time) outlined a bold ambition to make the UK the home of crypto.
Or, in the words of the then Chancellor of the Exchequer Rishi Sunak, now the UK’s leader, “a global hub for cryptoasset technology”.
Sunak outlined his ambitions at the start of April that would see the UK boost crypto firms' investment and desire to innovate and scale up in the UK.
“We want to see the businesses of tomorrow – and the jobs they create - here in the UK, and by regulating effectively we can give them the confidence they need to think and invest long-term. This is part of our plan to ensure the UK financial services industry is always at the forefront of technology and innovation,” Sunak said.
Evolution or revolution?
Jess Houlgrave is Head of Crypto GTM and Strategy at Checkout.com, the UK fintech giant that helps merchants accept payment from cards as well as other alternative payment methods and counts many crypto firms as customers.
These include anyone wanting to offer the ability for their customers to pay with the crypto as well as big exchanges - 12 of the top 15 by volume, ‘on and off ramps’ and marketplaces.
She says so far the UK’s crypto ambitions are proving more of an “evolution than a revolution” and that it is more likely we will see crypto and traditional finance converging and existing side by side.
“In that regard, London is actually a very obvious place to be a crypto hub, because we're also a TradFi hub,” she said
“f you think about the talent, the regulatory philosophy…if the UK can be very successful in financial services, then we can be very successful in crypto because these two things are going to meet and kind of be part of the same bubble overall.” added.
Since April there has been a huge change in both the political and crypto landscapes but both politicians and crypto natives don’t seem undeterred.
Part of the important new financial regulation coming down the road in the UK Financial Services and Markets Bill, which has received its second reading includes specific references to the regulation of crypto.
Andrew Griffith, the MP who tabled the motions told other lawmakers who were examining the new bill last month that distributed ledger technology and stablecoins “can have a huge positive benefit to the economy and for society” and that he was “very keen that we do not stifle that unnecessarily” while also noting that consumer protections need to be upgraded.
Houlgrave says regulators around the world are starting to wake up to the fact that regulation is an increasingly competitive game and the crypto industry is no exception.
“That is a massive shift over the last 10 years. [Before this] there wasn't the same idea of regulatory arbitrage that there is today.
In crypto, which is a very global industry, this has long been an important subject.
“[Startups might say ] I want to build this product because I believe in it, and I think it's the future. if I can't build it here, because the regulators aren't supportive of it, then I'm gonna go somewhere else,” Houlgrave said
“In that regard, the race is on for regulators to start approaching this with a competitive mindset,” she added.
Part of this is political, with an increasing number of UK politicians who want to see crypto move out of the shadows and into the regulated financial domain.
Houlgrave says this is not about a regulatory mind shift, though, and instead concerns a policy and a government mind shift.
“Regulators are given a mandate and so they need to be able to be given a mandate that says, hey, you need to think about the competitiveness of the UK when you're making regulation,” she said.
“There's a mandate and a policy question that needs to be addressed. I think the UK is doing that. They're saying, you know, we, we want to be the crypto hub, we're going to, really drive this forward,” she added.
Despite the political will, we have not yet seen that into new clear mandates for regulators. Part of this could be resources. Regulators here in the UK are not funded directly by the government, being ‘arms-length’ institutions of the state.
"My big concern at the moment is the regulatory is staffing and resourcing issues because these are incredibly fast-moving topics that we as an industry are rushing to stay on top of and make sure that we are fully on board and that we understand. We devote huge resources to this."
"It's only natural that a regulator is going to be slower moving, but if they're struggling to retain staff struggling to attract talent, struggling to resource the teams properly. How on earth are they going to keep up with making sure that the regulation that we need is in place and in place in a timely fashion?"
Speed is clearly an issue not just given the profound ‘volatility’ in both the price of crypto assets but also the increasing instances of corporate fraud and theft.
The UK has stiff competition from the European Union where an unusually speedy EU launched its MiCA regulation this summer and is moving to encourage a booming crypto industry, most notably in Paris where Binance recently set up its European HQ.
Mark Foster, EU Policy Lead for the Crypto Council says the EU is trying to take a pole position in the global race to regulate the growing crypto industry.
“Crypto is a global technology with global implications. The EU wanted to be a first mover and set the standard. Now, it is looking for global buy-in. If others go slower or put in place more agile regulations, they could find themselves on an unintended backfoot.
Despite the burning competition globally, not just from the EU, as well as the regulatory challenges posed it seems the 'policy and a government mind shift' is only part of the barrier.
Starling Bank for example this week revealed it would halt all its activity allowing customers to transfer or receive cash from crypto companies. Much of this comes from the fallout from the collapse of FTX, which will eventually pass. Nonetheless, it is naive to not recognise that crypto has become less palatable to many in the financial, political and real world in 2022.