A burgeoning branch of Fintech promises a £10 billion opportunity for British business – if only Britain gets the regulation right. As a report by Policy Exchange, published last month argues, an increasingly hostile regulatory regime in the US, the UK has a golden opportunity to seize a larger share of this market.
The City (financial district) of London has long led the world in financial innovation. From the invention of the modern company to the pioneering work of Lloyds in insurance, much of today’s financial ecosystem was invented in London. The Big Bang of the 1980s revitalised the financial district and in 2021, a study found that London was the second most innovative city in the world.
One area that offers much potential is Web3, a decentralised technology based on blockchain that offers to revolutionise the use of the internet. It is an extension of cryptocurrency using blockchain in new ways to new ends and allows crypto assets to be transferred quickly and securely.
Although the sector has had to shake off a “casino capitalism” image, now tech companies are rapidly developing new products with serious applications, according to Iain Mansfield, Director of Research at Policy Exchange.
Web3 ecosystem Multiversx handed out a mammoth $1 million prize fund at its xDay Hackathon. Organised alongside Encode and Dora Hacks, the event was powered by partners including Google, Cloud, Tencent Cloud and Deutsche Telekom, offering one of the largest hackathon[AJ1] prize funds in history. The event ran until 21st October.
Established companies like Paypal, JP Morgan, and Nike now offer blockchain products, and Web3 technology has been used to deliver aid to people in Ukraine, send cheap remittances to unbanked people in the developing world, digitise driving licences in California, and pay for carbon credits in India.
The US has traditionally led the field in this sector but a harsh wind is blowing in California, driving US firms across the Atlantic. Red tape and an increasingly febrile regulatory environment is pushing Web3 companies to establish branches outside the country – and some have even shut down their US operations.
A recent survey found that 12 per cent of crypto hedge funds are considering relocating from the US to jurisdictions that provide a more proportionate regulatory regime.
As a global Fintech hub, with a regulatory approach characterised by the “same risk, same regulatory outcome” approach, Britain is now increasingly attractive to investors. With £77 billion invested globally in blockchain start-ups, a conservative estimate suggests that the UK could easily secure new assets worth £10.7 billion – supporting 36,000 jobs.
The Prime Minister has made his goal for Web3 clear. When he was Chancellor, he said it was his ambition to make the UK “a global hub for crypto-asset technology” which brings jobs to the UK. Importantly, he added: “by regulating effectively we can give them the confidence they need to think and invest long-term.” Since then, a number of major US companies have opened branches in London.
Now the Financial Conduct Authority, and other regulatory authorities need to follow through, as Mansfield points out. New concepts such as digital wallets, stablecoins and tokens may sound unfamiliar to consumers now – but with the right regulatory approach, could become a familiar and well-used as banking apps and social media.
The UK’s public services also need to be ready to make the best possible use of Web3 and other emerging technologies such as Artificial Intelligence (AI). These technologies are coming and the UK, particularly London, should be at the heart of it. (The writer is our foreign correspondent based in the UK)
Oman Observer is now on the WhatsApp channel. Click here
