Optimism and Urgency Lie at the Heart of UK’s Global Crypto Potential | by Coinbase | Apr, 2022
By Faryar Shirzad, Chief Policy Officer
The digital economy is permanently changing the nature of financial services globally and digital assets are at the center of much of this rapid change. This is something clearly understood by the UK Government. John Glen, Economic Secretary to the Treasury, used his recent keynote speech at Fintech Week to highlight the opportunities crypto presents to the UK economy — and that the country is keen to embrace them. Noting that the UK is second only to the US in the global league table of fintech hubs, Mr Glen was clear in his message that “the UK is open for business, open for crypto companies… we want this country to be a global hub, the very best place to start and scale crypto companies.”
Coinbase welcomes Economic Secretary Glen’s statement and commends the vision of the UK Government that stands behind it. The UK’s depth and strength in capital markets, fintech leadership, its globally respected regulators, its deep talent pool, and the innovative dynamism of the country’s economy combine to present an opportunity for the UK to be a leader in the next technology revolution and to become a global powerhouse for web3.
There is no question that fintech in the UK is growing rapidly and that the broader financial industry will increasingly be built on crypto rails. Mr Glen himself referenced the 200% year-on-year rise in fintech investment. He’s not a lone voice seeing the potential. Some of finance’s most influential voices are waking up to crypto’s economic and transformational power. From funds and VCs to the real economy investor, the UK is increasingly embracing crypto and recognizing its social, cultural, and economic utility.
This is a continuation of a global trend. Larry Fink, chairman of BlackRock, the world’s largest asset manager, for example, revealed in his latest letter to CEOs that BlackRock is investigating how digital currencies, stablecoins and underlying technologies “can help serve” clients of the $10 trillion firm. At the retail level, Coinbase’s own research reveals that about a third of people in the UK who are aware of crypto own or have owned digital currency, and twice that amount intend to increase their holdings. We’re at an inflection point in the adoption curve.
But increased adoption is only the tip of the iceberg. As the possibilities of how crypto can revolutionize traditional finance reveal themselves, there will be so much more innovation at the core of this movement. Whether that’s existing payment systems being streamlined through digitalization or complex contracts being hosted on the blockchain, whole new economic frontiers will open up, bringing new employment with them.
As Mr Glen himself said, these developments create an opportunity for the UK to leverage its existing and formidable advantages to be a leader in digital innovation. He says that if crypto is going to be a “big part of the future, then the UK wants in, and in on the ground floor.” We believe the country can do this by taking steps to build a more free and open financial system, bridging the gap between traditional financial services and the crypto industry, and supporting economic growth and jobs.
Get it wrong and there’s a risk the UK cedes a critical dimension of its financial and technological leadership, and signals to the next generation of entrepreneurs to look elsewhere to build, hire, and grow. Coinbase believes and has advocated for thoughtful regulation for digital assets around the world. We applaud the work and deep thinking that the UK Government is doing to address consumer risk, market integrity, and competition in the financial sector — these are critical issues and require careful analysis.
But what is also critical now is continuing this positive reframing of the debate to focus on the opportunities from digital assets, as opposed to just the perceived risks. Without such clarity, there is a danger the UK is left behind, particularly as more and more entrepreneurs and businesses seek to use crypto rails to build their new ventures. For example, we are concerned that the proposed changes to the existing Financial Promotions Regime to cover crypto will, unless carefully recalibrated, render a de facto ban on the marketing of crypto services in the UK.
Looking ahead, we want to highlight some key principles for consideration by the Government as it considers how to best put the UK on the path to be a web3 leader:
Creation of a tailored framework for digital assets
Digital assets — and in particular blockchain technology — allow for increased efficiency in the financial sector and offer a transformational level of financial empowerment for everyday people. That is why the UK Government’s decision to bring the cryptoeconomy into a central focus of its policymaking is so important. The cryptoeconomy, however, is rapidly evolving, and policy should adapt with it through a regulatory regime that is flexible enough to cope with current and future needs as they emerge — all informed by input by stakeholders and the public.
This is a point the UK authorities clearly appreciate and understand. Mr Glen said that crypto will bring dynamism to finance and that regulation must therefore be dynamic too, “rather than a static, rigid thing.” His analogy of envisioning regulation as “computer code, which can be refined and rewritten when needed” is well-stated and absolutely correct. Marrying this vision of dynamism with the work of regulators who have achieved their international status by being reliable and predictable is clearly something that will require some effort.
For example, industry eagerly awaited the publication of the UK Government’s Stablecoin Consultation response and broadly supported the proposal to bring stablecoins — where used as a means of payment — under a clear regulatory framework. However, success will be determined by how well and quickly this is implemented. The UK Government’s planned consultation and implementation of tailored digital asset regulation will need to be a fast follow to ensure that the UK does not fall behind.
Oversight by a dedicated policy & supervisory unit
Creating a dedicated policy unit and an equivalent supervisory unit with the resources to oversee digital assets would be a worthwhile investment, potentially with a cross-regulatory function much like the Digital Economy Taskforce as proposed by the Kalifa Review. It would need to be staffed by those with specialist knowledge of the sector and could also act as a single point of contact for the industry and present clarity for new and emerging businesses who are considering the UK as their home.
Again the UK Government shows its foresight, with Mr Glen sketching out a new world for both the “newly regulated and the regulators,” with a Government Minister driving the process, including the establishment of the Crypto Engagement Group. For him to imagine a policy of industry and authorities “working together and learning from each other” while maintaining high standards, yet being flexible and working at the pace that the speed of innovation needs” sets the UK as an inviting home for web3 entrepreneurs Mr Glen’s challenge is to make sure that he delivers on his promise to create “robust and effective innovation that won’t hinder innovation, but will boost it.”
International harmonization & Industry coordination
With digital assets rapidly becoming a worldwide phenomenon, countries around the world are competing to establish themselves as leaders and to embrace the potential of the new, decentralized web. As the UK emerges as a leader in crypto and digital assets, it has a unique opportunity to work with other like-minded countries to create a workable international framework for regulation. All this needs to be done together with the industry and other stakeholders in a consultative and transparent manner. True innovation means engaging with the people working with those who have important perspectives on how the best policy outcomes are achieved. A fresh focus on digital assets does not mean leaving established institutions behind — they will unquestionably play an important role in the future and in many cases, will adopt blockchain technology as a critical component of their infrastructure.
To conclude, we must recognize that digital assets are a technological breakthrough that allows us to increase economic freedom for everyone. The UK Government certainly recognizes this, though Mr Glen rightly says that “no one knows for sure what the future of crypto looks like in the UK.” But what he has shown is that the UK clearly sees that the future can only be embraced by not focusing exclusively on perceived risks, but instead also seeing the opportunities.
Mr Glen finished his address by saying “we’re on the cusp of something important, we have the opportunity to shape and lead it.” By following through on this vision and by implementing consistent, proportionate and appropriate regulation as soon as possible, the UK can not only help bring about a better, safer, more resilient and fairer system for everyone, but also help unlock broader innovation. The UK government — and Mr. Glen specifically — deserve enormous credit for setting the stage for the UK to play an important role in the future of innovation.