The City of London is forever trying on new mantles. In 2012, UK chancellor George Osborne spearheaded a push to make it the biggest renminbi trading hub outside China. Six years later, his successor Philip Hammond talked up the UK’s chances of leading the world in green finance. Now, the Treasury is turning its attention to blockchain. It declared an oxymoronic ambition to make Britain a “global hub” for the decentralised finance (DeFi) industry this week.
The announcement was not taken as seriously as the government would like. Chancellor Rishi Sunak billed plans for the Royal Mint to issue a non-fungible token as an emblem of the UK’s “forward-looking approach”. The reality, say lobbyists, is rather different. Earlier this year, ex-chancellor Hammond, now a senior adviser for crypto company Copper, claimed Britain had been outpaced by other finance hubs, including in the EU, in regulating the sector.
Champions of innovation have to contend with worried watchdogs. On the same day the Treasury rolled out the welcome mat, Bank of England governor Andrew Bailey was decrying cryptocurrencies as the new “front line” in criminal scams.
Crypto groups now have to pass money laundering checks to operate in the UK. More than 80 per cent of the companies that sought full registration from the Financial Conduct Authority have either withdrawn their applications or were rejected. But those businesses can still sell their services in the UK. That is likely to be bad for British consumer protection, as well as UK-based jobs.
The UK is not alone in struggling with these issues. In the US it is unclear which US financial regulator is supposed to oversee crypto businesses. Securities and Exchange Commission chair Gary Gensler this week proposed splitting oversight with another agency.
The Treasury should not be howled down for trying to spot new opportunities for the UK’s finance industry. Its plan to regulate a broader set of crypto activities is welcome. But its ambitions for the City do not alter the case for stringent regulation. This is not a sector that suits a light touch.