If London wants to lead in crypto trading, we need better regulations
this week the City of London Corporation revealed that the capital now shares its position as the world’s number one financial center with New York. Interestingly, not so much because London’s score had dropped, it was the same as last year, but because New York had improved its performance in key financial areas.
This news led to the repetition of hare-brained ideas that will supposedly make London more attractive to international investors.
My favorite is the bizarre Edinburgh reforms announced in December 2022. These propose a solution to current ‘ring-fencing’ rules around deposits to give banks more flexibility with depositors’ money (which means taking more risk for more return – maybe).
Considering the recent collapse of Silicon Valley Bank and subsequent fears of contagion, this just seems reckless to me.
A prime suspect in London’s woes is British pension funds. At first glance, this does not look out of place. The allocation of assets in UK pension funds has changed radically over the last 25 years or so. In 1997 they had a weight of 53% to UK shares, last year it was down to just 6%. A smoking gun.
Or it would be if it weren’t for the fact that this huge drop isn’t the disease, it’s the symptom. The sickness is the lack of growth in stocks and, more importantly, the much-touted economic reforms promised seven years ago by Brexiteers that were never clearly explained, let alone implemented.
British pension funds have behaved like global investors in a globalized world, going after IPOs and high-quality stocks where they can find them. Personally, I feel reassured by the pension fund’s investment managers’ lack of misplaced patriotism. They are there to provide a return for investors, after all.
London cannot just stand still. So what now? Where is the growth opportunity? Could it be in crypto?
On 1 February this year, the government announced that it “will put forward ambitious plans to robustly regulate crypto-asset activities – providing confidence and clarity for consumers and businesses alike”.
One wonders if our diligent people in government ever talk to each other. On the one hand we have the Edinburgh reforms which remove the regulations and on the other we want to create a “robust regulatory standard” for crypto assets.
There aren’t many details from the announcement, but regulating a market of more than $1.2 trillion in assets, which trades $30 billion plus every 24 hours (and this is the crypto winter period) looks like a big opportunity for London . Currently, no other global financial center can be described as the “quality” marketplace.
Understanding what can and should be regulated in the crypto sector are the first important steps to building a respected regulatory environment. The UK government needs to be specific about the types of crypto companies it wants to oversee. Reducing reputational risk is easier if you don’t try to regulate garbage.
Avoiding “meme coins”, for example, whose growth is based on a “supportive community” (whatever that is?) will help, and sticking to cryptocurrencies built around innovative businesses, rather than Elon Musk’s tweets, would be a good choice for regulation.
Of course, there will always be bad actors in crypto, as in all businesses. However, I will consider this. On November 6, 2022, there was a red flag on a blockchain movement of FTX native cryptocurrency FTT. Within five weeks, Sam Bankman-Fried was arrested for fraud. It took more than 34 years to arrest Bernie Madoff.
It is time for London to become the center of quality regulation of cryptocurrency business before another city gets the crown.
Stefan AlleschTaylor is a serial entrepreneur and professor of practice at King’s College London
