The United Kingdom’s delayed response to crypto regulation has sparked fears that it is losing ground to the EU and the US. The country’s pioneering edge in DLT finance has been eroded by this regulatory ambiguity. Deeming this fall a major misstep, industry leaders are calling on policymakers to act swiftly and restore the UK’s pioneering edge in digital finance. Will the UK reclaim its digital finance crown?
US and EU Lead in Crypto Regulation, UK Falls Behind
In a recent blog post, John Orchard, chairman, and Lewis McLellan, editor of OMFIF’s Digital Monetary Institute, claimed that the UK is failing to keep pace with the EU and the US in crypto regulation.
On Friday, these experts argued via the blog entitled “The UK keeps missing the boat on DLT finance” that the UK failed to deliver on its promise to set a premier standard for crypto regulation post-Brexit, instead making vague promises about future action. While they claim that the country’s digital finance sector has stalled, they attribute its root cause to “policy procrastination.”
Furthermore, the experts highlight that the UK has squandered its pioneering lead in distributed ledger (DLT) finance. They wrote, “The UK was the blockchain future once… Talk of shaping UK regulation for global leadership has since disappeared.”
While the UK is lagging, both the US and the EU have already taken significant strides in crypto regulation. The European Union’s MiCA framework and the US’s GENIUS Act are moving forward. But the UK’s Financial Conduct Authority remains silent, without a confirmed crypto regulatory update. This lack of clarity is hindering the UK’s ability to adapt to the shift towards on-chain finance.
Too late. While MiCA is already established and the US gets ready for a ‘big bang’ of digital assets regulation, with the Senate just passing the Genius Act, the UK government continues to talk un-specifically about regulation in the future. As it stands, there is a date conspicuously missing for the ‘Regime go-live’ portion of the Financial Conduct Authority’s ‘Crypto Roadmap,’ though it suggests some time after 2026.
In particular, the experts pointed out the UK’s treatment of stablecoins. The UK’s approach to stablecoins has been criticized for lumping them together with crypto investment assets, unlike the US, which treats them as distinct payment tools. The experts posited that if the UK wants to align more with the US financial system, it should adopt a similar approach to stablecoins as the US. With the GENIUS Act, which passed the US Senate recently, the US is categorizing stablecoins separately. The Bank of America is also exploring the possibility of launching its own dollar-backed stablecoin.
Can the UK Regain Its Edge in Digital Finance?
Orchard and McLellan offered two potential paths to establish the UK as a leading global financial centre for tokenization with a progressive approach to crypto regulation.
- Exploring Wholesale CBDC: The experts suggest that the country accelerate the implementation of a wholesale central bank digital currency (CBDC), similar to the European Central Bank’s approach.
- A Two-Pronged Approach: The UK could follow Hong Kong’s lead by implementing a dual approach, combining stablecoin regulation with wholesale CBDC-based tokenisation.
