by Simon Jennings, Executive Director of the UK Cryptoasset Business Council
The UK’s crypto economy stands on the cusp of great change. Reports coming from inside HM Treasury indicate that the crypto asset regulatory perimeter will begin a process of reform later this year. But exactly what shape this takes remains to be seen.
In April, the then Chancellor announced his ambition to “make the UK a global hub for cryptoasset technology and investment”. This was met with a wave of enthusiasm throughout the entire global crypto-economy.
However, this ambition was announced against a different societal, economic and political backdrop.
Fast forward to now and we live in different times – not least with a new Prime Minister and Ministerial teams.
So, what does this mean for the future of our crypto-economy?
The early signs are positive. With Richard Fuller MP, a current Treasury Minister affirming the UK’s wish to be the “dominant global hub for crypto technologies (…) to become the country of choice for those looking to create, innovate and build in the crypto space”.
Additionally, the progress of the recently introduced Financial Services and Markets Bill is encouraging. The Bill will establish a stablecoin regime and enable the use of a wider set of payment methods in the UK.
Yet, political ambition and platitudes alone won’t get us where we need to be. However, without a clear policy pathway, current operational realities will remain the same. We need tangible outcomes – a measured regulatory framework that balances innovation, market integrity and consumer protection. With data out in July commissioned by HMRC, showing that 10% of UK adults have held crypto assets – up from 5.7% in January 2021 can we afford to get this wrong?
Right from the get-go of her premiership, Prime Minister Liz Truss affirmed she would “empower the City to drive economic growth” through tax cuts and regulatory reform as part of her bid to maintain a competitive edge and “supercharge growth and investment”. This clear focus, coupled with the Chancellor’s promise of ‘Big Bang 2’ for the City is a positive signal.
Crypto assets can play a leading role in this vision and help deliver on these objectives. It is vital, however, that this administration embraces a ‘technology’ and ‘digital first’ approach to policy making. Rather than viewing crypto assets as a threat to the existing ecosystem, they should be viewed through the lens of a tool to augment and revolutionise existing and embedded technologies to create new opportunities that can unshackle the City of London.
Truss might be closer to supporting crypto assets than you think. Back in 2018, she Tweeted: “We should welcome cryptocurrencies in a way that doesn’t constrain their potential” and put her name to a report, overseen by Sir Iain Duncan Smith MP calling for accelerated plans for a digital pound.
The industry can also take a lot of solace from Truss’ recent appointments to her top team within Number 10. She has unashamedly hired personnel who have cut their teeth at centre-right leaning think tanks.
Chief among them, Ruth Porter, Deputy Chief of Staff, who first worked at the free market Institute for Economic Affairs and then at Policy Exchange. Policy Exchange has historically been a crypto sympathiser, urging policymakers in 2018 not to write off the sector. Or Matthew Sinclair, Chief Economic Adviser, at the No.10 policy unit who has been drafted straight from leading on the ‘digital economy’ at consultancy Deloitte. And joining him will be Shabbir Merali, who has advised Truss on the economy since her days as Chief Secretary to the Treasury. One former Whitehall adviser says he is rated by Treasury mandarins and takes a keen interest in tech policy and its interaction with economic growth and productivity.
HM Treasury shake-up
Rhetoric is already starting to translate into action. Andrew Griffith MP, Financial Secretary to the Treasury (FST) will take over the City Minister brief from the Economic Secretary to the Treasury (EST) and assume responsibility for financial services, including cryptoassets. Griffith is a slick operator and remarkedly pro-business, having served on the board at Sky for over ten years and subsequently appointment as the PM’s Chief Business Adviser. We can expect a measured approach to policy making and one that incorporates the back benches, give his former role as Minister for Policy and Head of the Prime Minister’s Policy Unit.
No time like the present
Whilst the likes of Switzerland, France and Dubai have regulated in favour of crypto assets, the UK has stood still. The UK has no home-grown unicorns in the crypto asset space. Even Austria, which has a fraction of our GDP has one. We did have one, which was recently valued at £12bn but they left the UK due to the perceived hostile regulatory environment.
If the UK isn’t careful, we will lose out in the global tech race. There is one tech firm in the FTSE. We need to incubate and attract the companies of tomorrow. The wider sector trends in the UK are concerning.
Currently, 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.
Get this right and crypto assets will play a game changing role in helping the UK prosper in a post-Brexit landscape – helping to kickstart a wave of digital innovation and a future proofed job market. When you consider that global investment in the crypto and blockchain sector soared to more than £25bn in 2021, up from £4.6bn in 2020, it is clear this is an opportunity the UK must not miss out on.
The adage ‘change is inevitable, growth is optional‘ couldn’t ring more true. Financial services are evolving as we know it. 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.