London has long been one of the world’s most prominent financial hubs. But as the United Kingdom delves further into an uncertain period of political instability that could radically alter the very identity of the country, its attractiveness for business is starting to be questioned.
Despite the need to appear as business-friendly and open to innovation as possible due to the ramifications of the ongoing Brexit crisis, the U.K. still lacks a concrete framework for the regulation of cryptocurrency.
However, in mid-November, the United Kingdom Jurisdiction Taskforce of the LawTech Delivery Panel published a statement exploring the legal status of cryptocurrencies, blockchain and smart contracts under English and Welsh private law.
The Brexit crisis has tarnished the reputation of the U.K. — a country that was once famed for its strong economy and pro-business approach has come to be known for division and stagnation. For three years, the country has remained in stasis as other, more forward-thinking nations fill the void left behind.
Despite many prominent crypto-related companies basing themselves in the U.K., the country yet lacks any concrete crypto regulation compared to some of its Asian and European counterparts.
Taking a step out of the still waters, the Tech Nation and LawTech Delivery panel report seeks to lay the foundation for a robust regulatory framework for blockchain, cryptocurrency and smart contracts. Most notably, the legal statement outlines crypto assets as tradeable property and smart contracts as enforceable agreements under local law.
Extending a helping hand
Although the publication of the report is an indicator that progress is being made behind the scenes in the U.K. regarding crypto regulation, it does not represent direct action or explicit support from the government itself. Nevertheless, the LawTech Delivery Panel members include industry experts and U.K. government figures, as well as members from the judiciary space — all seeking to develop the burgeoning crypto sector within the country.
The report begins with a bold statement from the chancellor to the High Court and chair of the U.K. Jurisdiction Taskforce, Geoffrey Vos, about the potential of cryptocurrencies and smart contracts:
“In legal terms, cryptoassets and smart contracts undoubtedly represent the future. I hope that the Legal Statement will go a long way towards providing much needed market confidence, legal certainty and predictability in areas that are of great importance to the technological and legal communities and to the global financial services industry.”
Vos speculated that the report, while not setting out the specific details for crypto regulation itself, would play an important role in future attempts to do so, and “provide a foundation for the responsible future utilisation of cryptoassets and smart contracts.”
A spokesperson for CryptoUK, the U.K.’s self-regulatory trade association representing the crypto asset sector, gave a statement to Cointelegraph regarding the LawTech Delivery Panel’s publication:
“The LawTech Delivery Panel’s legal statement on cryptoassets is welcome because it brings a degree of greater clarity to the legal standing of cryptoassets in English law.”
The report also celebrates the potential for blockchain and smart contracts. As observed by LawTech Delivery Panel director Jennifer Swallow, the global smart contract market is expected to reach $300 million by 2023.
The same publication states that the World Economic Forum predicts one-tenth of global GDP will be stored on blockchains by 2027. Consequently, Swallow outlined her belief that regulating these technologies is vitally important, “It is great to see the adaptability of our common law system to fast-changing technology, demonstrated in this landmark legal statement from the UKJT.”
While any statements on the regulation of cryptocurrency are welcome, readers of the report will note that the taskforce has been clear that it is not recommending a comprehensive account of all legal details regarding the technology: “Its purpose is to answer the questions we were asked and to state briefly our reasons in a form accessible to non-lawyers as well as lawyers.”
Investors seeking a definitive step toward cryptocurrency’s ultimate goal of replacing mainstream finance will be disappointed by the absence of discussion about cryptocurrency as money:
“The Taskforce considers that matters of taxation, criminal law, partnership law, data protection, intellectual property, consumer protection, settlement finality, regulatory capital, anti-money laundering and counter-terrorist financing are best dealt with by other bodies or organisations. We have not trespassed into issues relating to monetary policy or the nature of cryptoassets as money”
The UK crypto industry comments on the potential impact
As might be expected in the cut-throat business environment of the U.K., information that could give businesses the edge they need to succeed are awaited with bated breath. While the report is unlikely to create waves in the U.K. crypto world on its own, several figures from the industry spoke to Cointelegraph about what prospects it could have for further development.
Piers Ridyard, CEO of the Radix decentralized ledger, told Cointelegraph that U.K. authorities are actually relatively open to crypto innovation and that their cooperation with the writers of this report should be noted:
“The FCA has been progressive on its views on crypto for years; including monitoring and permitting trials of the technology in sandbox environments before regulatory licenses are needed. The UK generally sees itself as a Fintech leader, and the FCA sees part of its job as not getting in the way of innovation. This report was written with direct input from members of the FCA, and is overall a good indication of the direction the UK wants to head.”
However, the regulatory compliance team of London-based cryptocurrency exchange CEX.IO explained in a private correspondence with Cointelegraph that as the report is published by an independent, non-governmental body, the impact is not likely to be immediate, but it could play an important role in regulatory decisions made further down the line:
“We can speak only about indirect influence, since the Lawtech Delivery Panel is a consultative rather than a regulatory or legislative body. However, it has significant influence deriving from industry and government support. Given this influence, the considerations and conclusions of the panel may be used by lawmakers, regulators, and courts as the baseline and grounded rationale for further decisions.”
Sukhi Jutla, co-founder of blockchain-based gold and jewelry platform Market Orders, told Cointelegraph that what the report lacks in immediate ability to bring about legal change, it makes up for in demonstrating the interest that relevant authorities are paying to cryptocurrency, adding:
“This should hopefully encourage more conversations to be had around how these assets should be governed and regulated in a way that fosters innovation and development in the blockchain and crypto community.”
U.K. law — better for crypto?
The U.K.’s legal system is one of the most reputable in the world. Combined with the country’s long and well-established financial history, this makes it a strong candidate when choosing a country in which to set up a business.
For some crypto entrepreneurs, U.K. law is also better suited for the regulation of crypto than the legal systems of other countries, as stated in the LawTech Delivery Panel report. The compliance team of CEX.IO told Cointelegraph that the U.K. common law system is more adaptable than its European counterparts, “Compared to continental law, sometimes you do not need to go through the time-consuming and complicated legislative process, but rather can rely on the determination of the court.”
Radix CEO Piers Ridyard told Cointelegraph that the U.K.’s legal system has a competitive edge when it comes to fintech, citing its flexibility for innovation in the market:
“Its case law based approach to rule enforcement in court is also very flexible for quickly adapting to new changes in market when the letter of the law can be sometimes unclear.”
Having founded a blockchain-based business in the UK, Market Orders’ Sukhi Jutla explained to Cointelegraph that while the U.K. is a good place for fintech companies to launch, more work needs to be done in order to iron out the legal gray areas:
“For the UK to emerge as the best place to create a crypto-related company, business owners need greater clarity and support from the government and financial bodies to feel assured that their innovations won’t get them penalised or fined.”
Is the U.K. still attractive for crypto business?
Although some more radical crypto enthusiasts are itching to see the mainstream financial superstructure crumble and fall, many involved in crypto-related business in the U.K. want to see it develop into a system capable of more forward-looking practices.
Despite the sluggish government action on cryptocurrency, several crypto businesses told Cointelegraph that along with the legal statement’s publishing, they see positive developments occurring in the U.K. According to the CEX.IO team, London still wears the financial crown, and cryptocurrency adoption will pave the way for the city to keep its prestigious status:
“First of all, the UK was, is, and will be the leading financial center of the world. We believe that crypto assets and underlying technology bring dramatic changes to the architecture of the financial world, and the UK, whether we are talking about the City of London, Canary Wharf, or elsewhere, is in the best position to keep their high status, providing an attractive environment and creating a fertile ecosystem for future development.”
Radix’s Ridyard told Cointelegraph that while the U.K. enjoys a strong reputation based on its history of being pro-business, it is slipping down the rankings and Brexit brings with it further uncertainty:
“The UK ranks number 8 on the world’s ranking of ease of doing business, and has one of the most mature financial regulatory frameworks in the world. With the advent of Brexit, it is likely to continue to fight hard for making itself as attractive as possible as a jurisdiction crypto related companies as this is the future of finance.”
What more can be done?
While the statement might not be the groundbreaking legal framework many are eagerly anticipating, it is nonetheless a demonstration that progress is being made in terms of cryptocurrency regulation.
The U.K. legal framework is thorough and change can, and often does, take time. A CryptoUK spokesperson told Cointelegraph that while the legal statement is a positive development, it is not a substitute for comprehensive legal action:
“That’s why we’re calling for the regulation of cryptoassets in the UK, to provide greater certainty and adequately protect consumers. We are actively working alongside regulators and the Government to help deliver a proportionate and well-designed UK regulatory regime which matches the best of other jurisdictions across the world.”
Similarly, CEX.IO’s compliance team believes that there is great appetite for crypto regulation in the U.K., despite there having been a number of rules already put in place: “The specific crypto-focused legislation should also clarify relations with financial institutions, that will stimulate the markets growth.” However, the exchange believes that there is still a long way to go before the regulatory environment in the U.K. can be considered up to scratch:
“The Cryptoassets Taskforce — consisting of the HM Treasury, the Bank of England, and the FCA — did a great job back in 2018, and it was later incremented by the FCA when they issued their Policy Statement on Cryptoassets in July this year. But there is much more work to be done, and this statement is a significant contribution.”