London: Stick or Twist
For years now, those who have looked to ascend the ladders of the Western corporate world, particularly in such a convoluted space as finance, have had a decision to make at some stage.
Am I in the right place to reach my goals? Could I get there quicker elsewhere?
These thoughts are often amplified against a backdrop of poor economic circumstances, inflation, cost of living skyrocketing. Maybe your favourite football team that wears blue can’t win a game, the cost of a pint after work now regularly exceeds £7, and once every few weeks you’re inconvenienced by one of our green-fingered ‘friends’, who’ve decided to glue themselves to the M25.
Oh, wait, water companies in the UK want to increase our bills by £156 a year? Shock. All the while it is as likely one of the buses, trains, or tubes we rely on daily will be striking due to unfit working conditions. Need I go on? I won’t, it’s a Tuesday and you don’t need more doom and gloom whilst you tuck into your £5 meal deal (don’t get me started).
BUT, it does beg the question… Are the gripes we face a fair remittance for what we get in return? And looking to the future, will our governments safeguard our position as leaders in Financial Technology, and by doing so, incentivise us, alongside the world’s brightest minds, to keep calling this place our home?
The UK is home to some of the largest payment companies and most successful neobanks in the world; Revolut, Wise, Starling Bank, and Monzo Bank to name a few. This in part can be attributed to the UK being among the globe’s most innovative financial services regulatory environments.
Compare this now, to the once bountiful and regulation-friendly USA, whereby competition and innovation were of paramount importance, which resulted in the booming financial markets we have participated in for years. Now however, as Crypto, Challenger Banks, and disruptors aim to take more and more market share, the US seems to be doing whatever it can to restrict the advancements that the UK is now benefiting from. I’m sure there is a correlation between those who seek to block and the benefit they have in doing so, but that’s a conversation for another day.
Regulation is now a blocker to innovation, particularly in the US. But here in the UK, we have used it to cultivate domestic competition, and by doing so, increased our global presence on the biggest stages. Sitting conveniently at the intersection between the USA and APAC, our small but mighty island still has the gravitas to have a seat at the table with the big boys. We’ve identified a few reasons why this is.
UK regulation supports FinTechs, particularly with banking licenses
Getting a bank off the ground is a highly difficult task. Want a license? You need the capital to prove you can absorb losses and maintain financial equilibrium. Need funding to get the capital to absorb said losses? Good luck securing the funding without a license. What does this create? Crippling regulation that allows for zero innovation.
The UK has sought to fix this problem, offering Neobanks, like Starling and Monzo, a banking license that comes with limitations, designed for start-up companies that cannot accumulate the required capital to grow and operate. This over time enables further funding as VCs and Equity investors see a far safer investment than without said licenses.
First adopters of modern fintech infrastructure
Coupling the UK’s supportive regs has been our early adoption of modern financial infrastructure. A beneficiary of the Faster Payments System, furthered by becoming one of the first global markets to issue contactless (tap-to-pay) cards, in 2007. This happened a full 8-years prior to the US following suit. As a result, today consumers in the UK use contactless payments for 9/10 of their face-to-face payment transactions.
It doesn’t stop there. UK institutions are continuing to invest. Most notably of which, this summer, British finance giants, Mastercard, Barclays and the LSEG (London Stock Exchange Group) announced a £1 Billion fintech fund to back British growth-stage fintech companies.
The UK time zone trades with Asia and the Americas
Now, we appreciate there isn’t a lot that competing nations can do about this, but the UK is almost the perfect place for international offices, offering a global focal point for time zone overlap.
Geographical advantage, we’ll take what we can get!
Friendly and fair approach to digital assets
The European Council has sought to establish a fair framework and governance plan for Digital Assets. Time and time again we are watching Crypto powerhouses in the US crumble, under unclear rules, and rigid legal structures. Why is this?
The UK’s common law is the global standard, with the lion’s share of international trade happening under the guise of UK law. Common law in the UK makes sense. Judges are encouraged to apply common sense to facts and circumstances.
What has this led to? MiCA. The European Union is adopting for the first time a harmonised regulatory framework for the crypto-asset market which applies to both traditional institutions of the financial sector and new players emerging in the crypto ecosystem.
This has established a unique regulatory environment in the EU for crypto businesses, offering greater clarity on the overarching rules for industry players. It’s designed to deliver transparency, uniformity, and security in the realm of digital assets. A massive win for the UK/EU.
The clearest indicator of this success has to be Blockworks‘ DAS moving to London. Put succinctly by Blockworks: “After conversations with leading institutions and crypto companies, we determined that Washington DC is not the best place to host an institutional crypto event. We would share details but sending protocols into the belly of the beast… I think you get it”.
So, to wrap things up, the last decade has seen a generation of forward-thinking financial technologists and entrepreneurs flock to the market. UK regulators’ Risk vs. Reward assessment to regulatory policies, introducing a permanent digital sandbox, providing licensing for digital asset businesses (MiCA), and introducing innovations like VRP provide the platform for this little state to keep punching above its weight.
London has become one of the world’s hottest crypto hubs. Innovation is thriving, new institutional investors are flocking in, and regulators like the FCA are taking a pragmatic approach to crypto oversight. Across Europe, institutions are getting excited about crypto again thanks to sensible legislation like MiCA.
Will the creativity of UK entrepreneurs continue to disrupt the status quo in financial services? Our view? Worth sticking around to find out!
Written by Marcus Osborne
📅 This Week in Crypto 📅
Jury selection is scheduled to begin today, in Sam Bankman-Fried‘s trial in federal court in New York, who is charged with multiple counts of fraud, money laundering, and campaign finance offences in connection with the failure of the exchange FTX last November. Yet over the course of the trial, which is expected to last about six weeks, crypto itself may be in the dock along with Bankman-Fried, who has pleaded not guilty.
Michael Lewis has written Wall Street greats like “Liar’s Poker,” “The Big Short,” and “Flash Boys.”, and now in an interview on CBS’s 60 Minutes on Sunday, the author made Bankman-Fried out to be an unfortunate Robin Hood who stumbled into the multi-billion-dollar collapse of FTX last year.
JPMorgan Chase & Co. UK earlier this week put out a notice to customers saying it will no longer allow its customers to purchase cryptocurrencies using its debit cards or through bank transfers. Coinbase CEO Brian Armstrong slammed the move by Chase UK to ban crypto-related transactions, saying it wasn’t right for private companies to “de-platform” the crypto industry – even suggested that the U.K. government should take heed of the move.
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