By Simon Jennings, Executive Director of the UK Cryptoasset Business Council
We are on the cusp of a digital revolution. The use of blockchain and distributed ledger technologies has exploded in recent years. There is a paradigm shift happening right in front of us and it is a question of when – not if.
Put simply, these technologies will not only disrupt our financial services as we know them, but they will redefine how economies function and interact. Everything from our bank accounts, currencies, pensions, insurance policies and even our mortgages will be redefined.
The UK is well placed to capitalise on this opportunity and become the centre of the global crypto-economy. We have deep roots in financial markets, a revered legal framework, and deep pools of talent – combined with the regulatory and legislative freedoms Brexit has afforded us.
Get this right and the crypto-economy will play a game-changing role in helping the UK prosper – helping to kickstart a wave of innovation, growth and ensure a future-proofed jobs market. A recent report by PWC found that blockchain technology has the potential to boost global GDP by more than £1.5trn over the next decade and could deliver around 40 million jobs globally.
However, get this wrong and we will lose out in the global tech race. There is currently only one tech firm in the FTSE100. We need to incubate, accelerate, and attract the companies of tomorrow.
Currently, the wider sector trends in the UK are concerning. The flow of venture capital invested in London’s crypto asset firms is going in the wrong direction, with companies reporting almost a 70% reduction in venture capital deals between 2021- 2022. Meanwhile, global deals more than doubled to £4.08 billion.
Additionally, regulatory uncertainties and unknowns remain. For instance, there is a real prospect Truss will review the role of the FCA, PRA & PRS due to her perception they stymie growth. Intelligence suggests that may extend to extra powers for HM Treasury to ‘call in’ and override these regulators.
The Financial Service & Markets Bill aims to introduce new secondary objectives on the FCA and PRA to foster ‘growth’ and ‘international competitiveness’. Theoretically, this is a positive step, and it could turbocharge the UK crypto-economy in a global context. Yet, how it translates into reality and the interaction between primary and these secondary objectives remains ambiguous.
It will not be achieved, however, by weakening our world-class regulatory standards. It doesn’t have to mean a race to the bottom. On the contrary, a reduction in standards would not afford sustainable economic growth and it would undermine international confidence in our system and the very firms within it. A structure must be implemented to help balance these, at times, opposing objectives. Without such clarity and strategic direction, the jury is out on how effective this measure will be.
This is why groups like the UK Cryptoasset Business Council are vital – helping to dehumanise and demystify the space by bringing together select business leaders in the sector to educate Westminster and Whitehall and help deliver a measured regulatory framework.
We need tangible outcomes. Platitudes and broad ambition alone will not get us where we need to be. As the UK looks to begin to reform its cryptoasset regulatory perimeter later this year, it is vital key tenets inform policy-making – delivering a regime that balances consumer protection, market integrity and innovation.
The UK Cryptoasset Business Council has therefore outlined six overarching principles to that effect that are critical to the advancement of a supportive operating ecosystem. It is critical policy and decision makers consider these as part of the UK’s future regulatory framework.
An engine room for growth
Cryptoassets can turbocharge the economy and deliver a high growth agenda by reducing costs, streamlining cross-border payments, accelerating transactions, and fostering financial inclusion. This will deliver a global cryptoasset hub and ensure that the crypto-economy plays a forward role in the ongoing discussion around the future of the UK’s financial services sector, in a post-Covid landscape.
Brexit has left the UK free to forge its own regulatory path and be nimble in its approach. The UK should, therefore, look to leverage a global competitive advantage and introduce policies that help it become the country of choice for firms looking to construct, innovate and develop in the crypto-economy. It is vital policymakers advocate for policies that ensure the UK is a welcoming destination for the global crypto-economy so that we can attract investment, repatriate the UK’s crypto-economy, create new jobs, accrue benefits from tax revenues and create a whole wave of ground-breaking products and services that will kickstart a digital revolution.
The rise of cryptoassets will help pave the way for technological innovation. Emergent technologies, from DeFi to NFTs necessitate the need for an adaptable framework that can incorporate evolving products, services and offerings. Cryptoassets will help put the UK at the front of the global innovation race. Yet, to date, several leading cryptoasset firms have left the UK due to a perceived hostile environment. The UK should, therefore, foster a positive framework and environment that will encourage these companies to return home to onshore jobs, investment and tax take. Policymakers should take an ‘innovation first’ approach, like that in the AI and ML sectors, that promotes the potential of the technology. Ensuring the right rules as part of a measured framework would provide a safe space for innovation.
Cryptoassets decrease the number of inputs needed to derive the same outputs. They will help deliver lasting productivity improvements throughout the economy and help reverse the deeply embedded productivity crisis that is holding the UK back.
Future proof the UK job market
The UK population must be adequately equipped to adapt not only to new jobs but entirely new fields. The workers of tomorrow must be trained with the correct skillset today to reflect the rapidly changing technological landscape. A digitally literate population is essential to the UK crypto package. Policymakers should advocate for policies that equip the youth of today with the skills of tomorrow.
Ensuring high levels of consumer protection
A holistic strategy for consumer protection and ensuring market integrity are critical for the longevity of the sector. As explained above, weakening our world-class regulatory standards is not the answer, however.
Ultimately, financial services are evolving as we know them. The opportunity for the UK to be at the forefront of this change and become the global centre of the crypto economy cannot be overstated. It must be grasped with both hands. For the UK to remain a FinTech hub it needs to embrace innovation and place measured controls around it.
Consumers, investors, and businesses must see the UK as a beacon for digital innovation and consumer protection. In this way, we will boost prosperity and safeguard the future of our financial services sector. It must be grasped with both hands.