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The U.K. has less than 12 months to regain its footing on crypto or face a loss of talent and even its status as a global financial-services leader, the country’s former Chancellor of the Exchequer Philip Hammond warned.
It’s “frankly quite shocking” that Britain has fallen behind other finance hubs such as the European Union in setting clear regulation on the burgeoning crypto industry, Hammond said in an interview. “This is not the natural order of things,” said the former politician, who stepped down in 2019 and is now a senior adviser to London-based institutional crypto exchange Copper.co.
The Financial Conduct Authority issued a to restrict cryptoasset marketing to experienced investors this month, a day after the U.K. Treasury said it planned to tighten rules on crypto advertising. Other rules remain at the planning stages and a program to register crypto companies has faced delays.
“It’s credible that 2022 is available as a catch-up period,” Hammond said. But if the U.K. appears “manifestly behind the curve” next year, digital-asset businesses are considering relocating their headquarters to jurisdictions which are further ahead with regulation, such as Switzerland, Monaco and Germany, he added.
Regulators around the world are grappling with the boom in volatile cryptocurrencies, whose dramatic price swings have brought in millions of retail traders, along with institutions trying to harness the underlying blockchain technology to improve how they handle trades. While some crypto boosters see regulation as a threat to the decentralized nature of the asset class, others hope adding protection for users will lead to mainstream adoption.
For Hammond, the U.K. needs to regulate if it stands a chance of establishing what will become the core plumbing for many forms of trading. “That’s the big prize,” he said. “It’s not about cryptoassets. It’s about establishing the U.K. as a major base for digital trading infrastructure.” He said the situation has become “existential for the U.K. financial-services market,” which generated 8.6% of the nation’s total economic output in 2020.
Founded in 2018, Copper.co was recently in talks with investors including Tiger Global Management, SoftBank Group Corp. and Accel in a funding round that would value the startup at $3 billion, Bloomberg reported in November.
“Copper will prosper whatever,” Hammond said. “Copper’s strong and publicly expressed preference is to do that from its U.K. base, but if it can’t -- if it’s not able to because U.K. regulation doesn’t keep pace, if permissions and authorizations are not forthcoming in the U.K. -- that isn’t going to stop Copper moving at pace to exploit this emerging technology.”
Around 2.3 million Brits own some form of cryptoasset, research undertaken by the FCA in January 2021 showed, and the market has grown considerably since then. The Treasury said in its Jan. 18 statement that it would introduce secondary legislation to bring cryptoassets under financial promotions rules “when parliamentary time allows.”
“‘When parliamentary time allows’, I’m afraid, is a time-honored expression in government, which means ‘long grass into kick.’ That isn’t going to do,” Hammond said, noting that the EU’s Markets in Cryptoassets (MiCA) regulation is already firmly underway.
A spokesperson for the Treasury said it supports innovation in crypto, but that “it’s also vital that consumers and the financial system are protected from certain risks.” They added that the government is still considering the findings of its consultation on cryptoassets and stablecoins, which
Cryptoasset businesses including Copper are operating with temporary permission from the FCA. The backlog of applications for full registration forced the watchdog to extend the stopgap regime several times, with the latest deadline for approvals set at March 31. Copper’s application has not yet been signed off, and it could be forced to stop trading if it’s not approved in time.
An FCA spokesperson said the regulator continues to work with the Treasury on creating crypto rules. More than 80% of firms that have been assessed for registration have been rejected or withdrawn as a result of low-quality submissions, they added.
Other regions have adopted stiffer rules on marketing crypto including Singapore, which suggested businesses avoid advertising their products to the public entirely. Hammond said the statement was a signal that Singaporean authorities viewed the underyling blockchain technology to be the future of traditional finance.
“I know these guys very well. They are absolutely not, sort of, gambling money-type people,” he added. “It will be because they understand very well that establishing your financial services center as a hub for digital asset trading will place you at the forefront of the tokenization and digitization of traditional financial services trading in due course, and that’s going to be a huge, huge prize.”