By Nick Jones, Founder and CEO, Zumo
As crypto arrives in the mainstream, there’s been a plethora of chaotic headlines, ranging from a spate of so-called ‘crypto kidnappings’ to explosive fallouts between the Trump family and those creating new products bearing the President’s name.
Despite this erraticness, the huge potential of digital assets has become clear and sparked a flurry of both institutional and retail interest in the industry. The Financial Conduct Authority (FCA) recognises the sector as a source of significant economic growth and has announced its intention to lift the ban on crypto exchange traded notes (cETNs) in order to help bolster the UK’s competitiveness.
Regulation often lags behind innovation. And in the case of the nascent crypto sector, this has restricted the impact of developments while also allowing bad actors to creep into the financial services arena and create a number of farcical situations. The right regulatory treatment will now legitimise the industry, foster consumer confidence, and lay solid foundations for growth.
The good news is the UK’s regulatory wheels are finally in motion, but the bad news is that current proposals fall short.
It was interesting to read the House of Lords’ Financial Services Regulation Committee’s recent recommendations, which neatly summarise the main regulatory barriers to growth and international competitiveness. They include a deeply entrenched culture of risk aversion, the disproportionately high cost of compliance, and a widespread sense of uncertainty. These will all resonate well with those working in the digital assets space.
Let’s take stablecoins as a topical and timely example.
There is undoubtedly a massive opportunity to create the first gold-plated, ‘made in the UK’ stablecoin that delivers on what is so conspicuously currently lacking: consumer access to high-quality, sterling-linked stablecoins in an almost entirely dollarised digital economy.
However, the proposed rules on stablecoin regulation are a rather confused proposition.
The FCA has introduced some pragmatic and useful guardrails for stablecoins to be widely adopted, such as redemption rights for holders and risk-balanced reserve backing requirements. But HM Treasury has not decided to integrate stablecoins into payments regulation yet, and there is a lack of clarity about the Bank of England’s timelines for the regime for systemic stablecoins.
It feels like policymakers are simply kicking the can down the road, and the concern is this approach will inhibit the emergence of innovative business models and restrict use cases and the ability of market participants to use stablecoins for payments in the UK. It’s a little ironic the FCA’s proposals were announced in the same week that the two US-led giants Mastercard and Visa announced updates on their global stablecoin payment capabilities. In many ways, this is emblematic of the UK: too cautious, too unimaginative, and simply too far behind.
The Payments Association has called for HM Treasury to assume a central coordinating role, urgently advance work on the treatment of stablecoins under appropriate regulation, overseen by the FCA, and publish a clearer, time-bound roadmap.
UK regulators have a window of opportunity to bring clarity. The UK benefits from not needing to balance the differing perspectives and experiences of multiple member states, unlike the European Union with its Markets in Crypto-Assets Regulation (MiCA). It should therefore surely be a much easier task to find a clear line of sight between what the UK government wants, how regulation can provide this, and what is happening in practice.
It’s imperative that regulators now work more closely with the industry to ensure the right regulatory frameworks are put in place that protect consumers without killing innovative thinking. Regulatory clarity will release the handbrake and help the digital assets sector to realise its considerable potential.
We will all be watching with bated breath when Reeves takes to the stage at London’s Mansion House on Tuesday 15 July to deliver her address on the Financial Services Growth and Competitiveness Strategy.
And if we want to stop enviously looking on at the IPOs, deals, and partnerships happening everywhere but the UK, we need to be adopting a much more ambitious and proactive stance to ensure we don’t fall further behind in the global digital assets race.
