These are the notes of the breakfast briefing hosted by Laura Clatworthy of Rosenblatt, moderated by Helen Disney, of The Realization Group, and featuring a keynote address from Lord Holmes of Richmond MBE “Paralympian, parliamentarian and public speaker”, as well as a panel discussion with Sean Kiernan of Greengage and Memery Crystal’s head of funds and regulation Daniel Tunkel.
Lord Holmes’s address highlighted the four key areas (“four asks”) where things need to happen to drive change: Government, Regulation, Parliament, and People.
He outlined his overarching interest in this space as considering the potential for ‘new’ technology to solve ‘traditional’ problems and emphasised that it is beholden on all participants to do the right thing, in the right way, for the right reasons, to expound the positive opportunities presented by new digital technologies.
Addressing the unhelpful reputation of crypto market activity
He acknowledged that the ‘elephant in the room’ of recent crypto market activity (“it’s been a little bit tasty”) and associated media commentary was not helpful, since it perpetuated notions of ‘the Wild West’, Ponzi schemes and an overall perception that digital assets are by definition ‘iffy’. Referencing other ‘bubbles’ (South Sea Island, tulips, dot.com), he felt that, in fact, no-one should be surprised about current crypto events – overheating is typical of any new market, and ultimately leads to a shakeout of the players and ideally, removal of the less robust participants.
Referencing his 2017 House of Lords report on Distributed Ledgers for public good, Lord Holmes observed that it was ‘still good today.’ He noted that progress in looking at the potential for blockchain had been stilted by continuing emphasis on the speculative/riskier elements of crypto trading. This was instead of exploring DLT applications in medicine, pharmaceutical manufacture, healthcare, supply chain, agriculture and so on outside the financial sectors.
The Four Asks
1. Government – The UK is not doing enough
The UK is not yet doing enough, with sufficient pace, to support its apparent desire to become Blockchain Britain. While the new Centre for Finance, Innovation and Technology (CFIT), formed on the back of recommendations of the Kalifa Review, is a great initiative, its inaugural Chair and CEO won’t be in place until early Autumn. He stated that it is also important that its scope is well defined “they need to make smart picks…do a few things very well”.
2. Regulation – The UK might be putting caution over competitiveness
While recognising the historic success of the well-established FCA Regulatory Sandbox for Fintech innovators (and a new “scalebox” pilot), Lord Holmes observed that it is no longer the leading edge in regulatory ‘innovation’ since the model is now replicated around the world. It seems also to be the case that UK regulators remain focused on seeking to regulate digital assets from a risk perspective (market impacts, consumer protections), erring towards the precautionary/preventative rather than taking a more ‘rationally positive’ stance. Essentially, firms really want to be licensed (and regulated) in the UK but end up going to other jurisdictions with a more pacy regulatory attitude.
By contrast, France – and now Germany where the first regulated DeFi platform, Swarm, is based – are stealing a march on the UK in terms of regulation. Neither is a ‘soft’ regulator, and both are more enlightened about the underlying technologies, opportunities, and challenges.
3. Parliament – Needs to see blockchain technology as universal and not only financial
Parliamentarians tend to view the world of industry as verticals, with digital assets sitting firmly in the ‘financial services/markets’ box. The fact that there are discrete APPGs for Blockchain, Digital Assets, Fintech reinforces this perception. Blockchain technologies are potentially the ‘horizontal golden thread’ that weaves in and across verticals, bringing expertise and knowledge together. While more knowledge and engagement are crucial, Lord Holmes believes, however, that the Financial Markets Act 2022 is ‘the right level of Parliamentary scrutiny.’
4. People – Positive education and engagement is required
As with Parliament, much more positive education and engagement is needed around the opportunities – beyond promotion of (and negative commentary around) high risk, highly speculative, ‘investment opportunities.’ The general population’s current scepticism is entirely understandable in the absence of appropriate leadership and engagement. As a participant noted: “Public perception is primarily about price (e.g., of crypto coins) not the value of the technology…industry has much to do to educate people”.
In terms of an apparent resistance to change, Lord Holmes gave the analogy of the advent of IVF (in vitro fertilisation) technology in the 1970s. What was considered at that time as ‘shocking’ (“what could be scarier than creating life in a test tube?”) is now regarded, rightly, as a fantastic contribution and benefit to society.
In concluding his keynote remarks, Lord Holmes observed that “[we] should have been doing all this pre-2016. Now, it’s an absolute imperative. The economic, social, and psychological opportunities are infinite and will transform the social contract between citizen and state.
Following the keynote, our panellists gave their own insights into the discussion.
Sean Kiernan, CEO, Greengage
Opportunity for several crypto unicorns in the UK
Sean referenced his contribution to the Blockchain All Party Parliamentary Group (APPG). He noted that UK regulation, unlike Europe and the US, is more principles-based than prescriptive, and it presents a unique opportunity for the UK to engage with such a fast-moving technology in a responsive way.
He stated that over 4 years after the initial Blockchain Industry in the UK Landscape Overview conducted in 2018 with the APPG Blockchain and updated in 2021 in a collaboration with Greengage, Big Innovation Centre and Deep Knowledge Analytics, we are only seeing the beginnings of an industry strategy with initial green shoots that show promise. To illustrate the opportunity for Blockchain Britain, there are no homegrown blockchain unicorns in the UK while other centres including Gibraltar, Malta, Ireland, and Switzerland and even Austria are gaining purchase as jurisdictions actively supporting speedier/simpler licensing and supporting business growth with custody/securities services offerings.
Lessons learnt from the US approach
We might also learn from the US where there is no single regulator and there are disparate state policies (e.g., “Wyoming is open for business for crypto banks”). Even with respect to the financial regulators, the SEC and CFTC have clearly defined areas of regulatory responsibility. The US approach has been to take the new crypto/blockchain technologies (and assets) and align them with extant regulation established for ‘traditional’ assets – in other words, to interpret new requirements in the context of existing regulation and regulatory frameworks (such as the pragmatic framework proposed in the Lummis-Gillibrand bill currently under review in Congress). Our panellists agreed that criminal activity and scams may have clouded the regulatory view somewhat, and that legislative clarity from Parliament in the upcoming Financial Services & Markets Bill must bring a much-needed constructive legislative framework to support regulatory change of tone with respect to new digital technologies.
The importance of enabling policy makers to understand Blockchain
In terms of educating government and the public at large, Sean observed that as an industry we may forget that others are not as au fait with the language of these new technologies and that it is incumbent upon industry to provide the right tools to policy makers to speak effectively to their constituents. It was also noted that there is a need for a consistent voice, which can be problematic with multiple industry bodies, associations and even APPGs, often with competing views.
Finding opportunities from Blockchain in a post-Brexit Britain
Finally, Sean emphasised the need for a rigorous post-Brexit industrial strategy embracing blockchain/new technologies and learning from the lived experience of other jurisdictions. Likening this huge opportunity to “Wen moon” thinking (“when will this opportunity increase dramatically in interest”) he urges industry, government, and all stakeholders to promote UK as ‘open for business’, welcoming all comers as a leader in innovation, competition and (proportionate and appropriate) regulation.
Daniel Tunkel, Partner, Head of Financial Regulation, Memery Crystal
Daniel opened his presentation by addressing the public – and broader financial markets industry – misconception that new technology has created a ‘lawless, Wild West’. As he notes, “there’s always law underpinning any activity, but is it the right law, doing what it should?” He compared the position of crypto today with the position 25 years ago with the then burgeoning world of the internet when there was a rush to be ‘in’ the industry before the legal consequences of the new technology had been properly explored. Basically “we have been here before.” Consequently, there was a real struggle in the late 90s to make the old Financial Services Act 1986 work to support the new ‘online’ environment, and it took both the enactment of the Financial Services and Markets Act 2000 and the working of the new regulations made under that legislation to create a stable approach to online financial services. Now, we face the same thing all over again.
In terms of digital assets, crypto versions of ‘regular’ assets are necessarily subject to the same regulatory oversight as the ‘regular’ assets that they resemble, but spot transactions in digital coins– just like fiat spot currency trading – is not regulated, and NFTs and utility tokens are similarly outside financial regulation.
Consumer-facing laws may very well apply to crypto-transactions and as Daniel observed, “there are already plenty of laws that cover frauds involving these types of ‘assets’”.
Daniel was sceptical about the FCA’s general approach, thus far. The FCA has been given jurisdiction to register crypto-exchanges and wallet custodians purely for the purposes of their compliance with the UK Money Laundering Regulations 2017. But the Regulator has decided to move beyond that point and is “writing its own script” and has thereby created a deep and merits-based registration process, very closely following the requirements of an applicant for full authorisation under FSMA 20000. There is no clear basis for this approach in law, but de facto FCA can get away with this, given that its monolithic position and deep pockets ‘make the law operate in accordance with its will’. This would not matter unduly, were it not also for the fact that FCA seems to be using the regime it has created to turn away from UK operation altogether too many potentially leading businesses in the crypto world, who are now therefore impelled to take their stories of success-in-the-making to other jurisdictions, where the approach is rather less dogmatic.
Connect, collaborate, and drive forward with purpose
Summary conclusions from this event were:
- Government can be much more visible and active in this space. If it doesn’t understand the ‘golden thread’ opportunities presented by this technology, how can it hope to get buy-in from the public.
- Similarly, market participants need to engage with the public to communicate positive messages, in a language that is understandable to them. There is plenty for all participants, government, and regulators – to do to effect change.
- Media commentary and coverage is unlikely to be helpful – shock headlines sell more paper/get more clicks. We need to explore other ways to communicate and educate.
- There is infinite potential to make a positive impact, but we must be the agents, not subjects, of change.
This engaging discussion is the first in a series of briefings. The next event on NFTs and the metaverse will be on 29 September.
Speaker and Panellist bios
Keynote Address
Lord Holmes of Richmond MBE
As well as enjoying the accolade of being Britain’s most successful Paralympian swimmer, in his ‘day job’ in the House of Lords, Lord Holmes is a passionate exponent of the potential of technology, and an active participant in several Lords’ Select Committees including Democracy & Digital Technologies, AI and Digital Skills. He is also the co-chair of multiple APPGs in this space, including Fintech, Blockchain and the 4th Industrial Revolution.
Laura Clatworthy, Partner, Rosenblatt
Laura has expertise in a wide range of complex, multi-jurisdictional business & commercial disputes. She specialises in unlawful competition practices, business diversion & economic torts involving for example breaches of confidence, directors’ duties, fiduciary duties, post termination restrictions, inducement, conspiracy & deceit, and in intellectual property disputes. Many of her cases are in the financial services sector. She has a particular interest in Web3, blockchain and digital assets, and has led the development of our Web3 & digital assets practice group.
Sean Kiernan, CEO, Greengage
Sean has held roles in executive management in financial services within Credit Suisse and Zurich Financial Services. He [was/is] the COO of the London office of the first bank in the world to offer crypto products to clients – Falcon Private Bank. He has prior experience in successfully setting up a regulated UK bank within Credit Suisse.
Daniel Tunkel, Partner, Head of Financial Regulation, Memery Crystal
Daniel has three decades of experience advising on the entire width of the UK financial regulation sector. Many clients need advice on how to become and remain licensed by the UK Regulators; others are looking for advice on regulatory avoidance. Daniel also helps clients with the structuring and documentation of investment funds and other structures, both in the UK and offshore, and the marketing of these to UK investors.
Moderator: Helen Disney, The Realization Group
Helen is a regular conference speaker and commentator on cryptocurrencies, Blockchain technology and innovation policy for organisations including The Economist, The Times, and The Fintech Times. She is a co-founder of the British Blockchain and Frontier Technology Association and a mentor for the Global Thinkers Forum, a non-profit promoting entrepreneurship and women’s empowerment. She is a Director at The Realization Group, a full-service marketing and strategy consultancy specialising in financial markets.
