Crypto regulation could give UK competitive edge post-Brexit

Lack of regulatory engagement leaves retail investors exposed, ETC Group warns

by | June 15, 2021 | bobsguide

The UK has a “golden opportunity” to become the crypto centre of the world post-Brexit, but regulators must act quickly to provide a safe framework for digital assets to thrive, according to Steve Kelso, head of markets at ITI Capital and board adviser at ETC Group.

Kelso believes that becoming a crypto-hub could provide the UK with the sort of competitive advantage that it has been sorely missing since Brexit was finally ratified on the eve of 2021.

“For the last five months we’ve read article after article about traditional financial services migrating to Amsterdam, to Dublin and to Paris. We’ve seen Amsterdam overtake the UK in terms of equity trading volumes, but crypto is actually a golden opportunity for the UK to have a total lead in continental Europe with digital assets. London should be the global capital of crypto as it is for derivatives, FX and Emerging Markets trading.”

However, crypto currencies are yet to receive full backing from regulators and the sector is still approached with caution.

Talking at the ACT annual conference on Monday, Bank of England governor Andrew Bailey said that, while the central bank sees “an essential role” for digital coins backed by real assets, the current crypto market lacks the same level of “competency” and stability, and thus fails to provide a good medium for payments.

Kelso says the current regulatory attitude towards crypto currencies stems from a post-Global Financial Crisis desire to protect retail investors, but this thinking is flawed.

“The regulators, simply put, are afraid that they don’t have the framework developed yet to be able to protect the man and woman on the street. But the harsh reality is the man and woman on the street that they’re seeking to protect has been buying this thing for the last five years at least. Better to have regulated traditional financial services firms that know the rules to provide access.”

“[Crypto assets] have passed critical mass. There is no stamping out digital assets. This boat has sailed. The horse is out the stable door, across the fields and into the property next door,” says Kelso.

Paradoxically, Kelso argues that by delaying proper engagement with digital assets, regulators risk endangering the retail investor they are seeking to protect, as their only option is to invest using unregulated crypto platforms where there is no protection.

Kelso says his position is one of “empathy” for the regulators in the UK, as fiduciary responsibility on digital assets meant “just say no” three or four years ago. Now, however, the responsible thing is to allow crypto investment in the safest way possible for both institutional and retail players.

There are signs that regulators are beginning to warm to aspects of the so-called stable coins – digital assets backed by a fiat currency – and central bank digital currencies (CBDCs), with the BoE publishing a consultation paper last week to gauge their possible usages and implications.

The UK central bank also launched a new London Innovation Hub with the Bank for International Settlements (BIS) on Friday. Benoît Cœuré, head of the wider BIS project said that half of the existing hubs were focused on CBDC plans.

 

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