Innovation has always been the driving force of progress.
Since the dawn of humanity, people have had a strong desire to progress and develop new tools. That drive intensified in the 20th century. The information revolution sped up progress exponentially.
The internet changed everything from communication and commerce, to healthcare and travel. Across every part of society, things are faster and more efficient.
With the impact of the internet in mind, we’re looking at the potential cryptocurrencies have to spark the next revolution.
Money, as they say, makes the world goes round. Any change in the way it works sends ripples across numerous facets of our lives.
But regulation is a huge, often overlooked, part of innovation. The UK missed its chance to play a significant role in the internet boom of the 90s-2000s. Over-cautious regulation was in part responsible for stifling innovation. Decades later, the US (and Silicon Valley in particular) still leads the world in that industry. The UK still lags far behind. And that’s why regulators are thinking seriously about how to support cryptocurrency innovation.
The UK has the chance to be the centre of this new revolution in the way we think about and use money. Regulators, the government, and other organisations are being proactive about creating an environment where cryptocurrency companies can thrive.
That’s why we’re excited to see the inquiry the UK Treasury just launched into cryptocurrencies.
By looking at the risks and benefits, they hope to develop a regulatory framework that ensures we’re poised to lead the world in this space.
We wanted to share some of our thoughts on the results so far, and how the inquiry fits into the wider picture of UK cryptocurrency regulation.
A robust regulatory framework is essential for developing the ecosystem. Everyone benefits when regulators take a holistic approach.
Law enforcement know financial crime is under control. Governments know we’re not unfairly held back by outdated regulation. Companies know they can plan for the long-term without risking non-compliance. Most important, consumers know they’re safe and protected from harm.
Regulation is the invisible foundation of innovation.
The Inquiry aims to understand the upsides and downsides — for individuals, companies, regulators, and the UK as a whole. By communicating with key stakeholders and the cryptocurrency community, they hope to develop a secure yet unrestrictive regulatory framework. The Government, Bank of England, and Financial Conduct Authority are all involved. They’re also bringing in other experts, like venture capital firms and trade bodies.
At Luno, we’ve been pro-regulation from day one. Drawing from their experience working with banks and companies like Google, the Luno founders chose to self-regulate. Compliance is built into every part of the platform, from sign-up to spending. So we’re excited to see the UK taking such a nuanced approach to regulation.
The Treasury has taken evidence from a few sources so far, leading to interesting insights, with highlights shared below.
David Raw, deputy director for the banking and credit team at the Treasury
“The Treasury’s view is that, before we can regulate them, we need to understand them.
We want to approach this in the same way as we approach other bits of the fintech sector, in that we do not want to stifle innovation, particularly in relation to the underlying technology, but equally, we want to manage the risks.
Particularly through the work of the FCA sandbox, we are finding that there potentially is some social value attached to the crypto assets themselves. I was particularly interested in some of the test cases around money remittance, which have shown that it potentially offers quicker, cheaper money remittance…The Treasury sees risks attached to crypto assets; you are absolutely right. But we see benefits as well, particularly in relation to the underlying technology.
David Geale, director of policy at the FCA
“The September report will not give us the answers to all those questions [provided to contributors.] It will help us understand what questions we need to answer, what data we need to gather and where we can get it from relative to what we have at the moment. There will be further work that has to come out of it. It is not going to solve everything
…We are looking to see what things emerge from it that we can learn from. Then we can design around that accordingly so we can highlight the risks before they go out to the firms and the users. If we need to make changes to the regulation, given that it is in the regulated space, there are things we can do.”
Iqbal V. Gandham, Chair of Crypto UK
“Combined, these outcomes offer the opportunity for the UK to become a leader in the cryptocurrency sector, capturing the economic benefits of this rapidly developing industry. To not do so risks the UK losing out to other global players, who are already openly inviting our sector to call their countries home and introducing supportive regulation.
The UK missed-out on the internet boom, and we urge UK government not to make the same mistake with cryptocurrency, and more broadly blockchain.”
Outlier Ventures, venture capital firm
“Regulators need to be wary of the flight of intellectual and human capital as much as they worry about losing monetary gains with regulations that lag innovation occurring in the token ecosystem. Tokenized startups and the companies that service them are often made up of distributed teams and are highly mobile.
Where governments have been unfriendly to token-based innovations, those have been quick to resettle in more welcoming jurisdictions. Japan saw an influx of blockchain startups after the China ban, Binance, one of the largest crypto-asset exchanges, moved from Hong Kong to Malta and Indian entrepreneurs have begun moving towards Singapore as a response to the Reserve Bank of India requesting local banks avoid catering to token-based businesses.”
The UK is showing an open and democratic approach to investigating cryptocurrencies and blockchain technology.
The Treasury Committee’s work in collaboration with the FCA and BoE marks noteworthy progress in governance of the industry. Keeping in the forefront, the desire to drive innovation, increase benefits to society, protect against risks and set up a healthy ecosystem for the new technology to thrive sustainably.