Regulation
The UK’s patchwork of crypto regulations is still too complex to deliver any real benefits.
The opinions expressed in this article are those of the author and in no way represent the editorial position of Euronews.
While each of the existing regulations has benefits, they are part of an overly complex system of rules and therefore do a disservice to British citizens, writes Dr Paolo Tasca.
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Another cryptocurrency scam has benefited UK consumers.
Last weekend, the North East Regional Organized Crime Unit (NEROCU) issued a fraud warning against Cosoin, an “investment app” that is unfortunately nothing more than a scam. Ponzi.
The continued rise of scams and frauds like this came as no surprise that last May a UK Treasury committee “strongly recommended” that retail cryptocurrency trading be regulated in the same way as gambling last year.
Later in the summer, the Economic Secretary to the UK Treasury, Andrew Griffith, rejected this suggestion and disagreed with their recommendation to “regulate retail trading and investment activities in crypto -unsecured assets like games of chance rather than financial services.”
Yet in an effort to continue to protect consumers, the Financial Conduct Authority (FCA) shared a warning in September 2023 that crypto-asset companies market their services appropriately with new rules coming into force this year.
These guidelines are in addition to those of the FCA which already apply since September 1 to UK providers of virtual asset services to potentially withhold transfers to and from jurisdictions not complying with the FATF travel rule of UN.
In theory, this variety of rules, guidelines and warnings creates a “Swiss cheese” effect, which many have become familiar with during the pandemic.
Overlapping actions and guidelines suggested by different experts can create an ecosystem that minimizes risks through the strength of different approaches.
While effective in public health campaigns, this approach fails with technology. This makes knowing “what to do” a regulatory labyrinth inaccessible to citizens.
This complexity also has a negative impact on our GDP, our education system and consumer protection.
The UK needs clarity. While each of these regulations has benefits, they are part and parcel of an overly complex system of rules and are therefore a disservice to British citizens in three ways.
Harsh environments cost more than friendly environments
Firstly, it deters businesses and organizations from setting up here and employing in the UK.
Regulatory environments considered “difficult” are more costly to manage than friendlier environments.
Look no further than the vast array of crypto companies based in the Bahamas, Switzerland, and Japan for proof that regulatory clarity benefits national economies.
Simply put, the cost of lawyers, advisors and consultants pales in comparison to enforcement action. But both will be considered in any go-to-market strategy for a company working in blockchain and cryptoassets.
It’s also important to note that this includes companies that deal with this technology, even tangentially, like sending or receiving stable payments. Alarmingly, strict regulations could apply to a nonprofit that uses an open ledger to record data or statistics when purchasing or using tokens.
The UK is much more advanced than other countries in terms of the rules to work with, but they need to be more precise and adaptable to the growing area of blockchain and web3 use cases.
A proactive, welcoming web page or agency communications channel where businesses can ask questions directly to regulators would be a good start and show the UK’s commitment to technological advancements. There is still enough time to achieve this.
Lack of clarity affects progress
Second, by labeling tech industries as problematic or even criminal, the country further discourages universities and educational institutions from expanding into these areas.
The UK, again, is already a leader in this regard, with several leading universities offering blockchain, cryptoassets and AI programs to prepare our citizens for the emerging technological world.
But let’s not attribute this to recent events: these institutes are just as likely to be the result of early research in space.
In other words, the UK regulatory environment now determines which projects will receive grants and funding over the next five to ten years.
Given recent regulatory measures, it is more likely that these future programs will fall under public policy or law faculties rather than economics departments or business schools. The best future reality for British citizens must include both.
A law student should be able to study how to apply case law to new technological inventions, and a business student should be able to explore the creation and deployment of tokenization models for their future business.
Third and finally, a fuzzy system also puts consumer protection at risk, because consumers themselves need help determining what is allowed and what is not.
Lack of clarity makes consumers (and the businesses they run) more susceptible to manipulation by bad actors. It’s not easy to find regulatory information these days, and the “Swiss cheese” approach only works if everyone can understand how the slices fit together.
It takes a careful reading of the committee’s recommendations and press reports to truly understand the state of the union on crypto-assets.
And, as we saw last year, a new policy document can completely transform the status quo. This is not enough to help a consumer who sees questionable advertising online, nor a business seeking to understand whether its service partner is following regulatory guidelines.
Let’s go further in our work
These three issues make it more likely that another jurisdiction will supplant the UK as a leader in emerging technologies.
Given the EU and the far-reaching effect of its MiCA regulations and GDPR, the country(ies) with the most powerful rule ends up defining the actions of others.
In this scenario, the UK is likely to be subject to regulation in one form or another – without contributing to its design.
Why not build our infrastructure ourselves, benefit from jobs and GDP and also pass on knowledge to our students? We are skillfully recovering our economy and our citizens from the harmful effects of FTX and other bad actors.
Let’s take our work further and proactively build the structure and incentives – and rules – that are best for our GDP and consumer protection.
Through a timely and collaborative approach, we can influence the changes we want to see in the rest of the world.
Dr Paolo Tasca is Professor of Emerging Technologies at University College London and Director of the UK Center for Blockchain Technologies and the DLT Science Foundation. He was previously lead economist for digital currencies and P2P financial systems at Deutsche Bundesbank, Germany’s central bank.
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