LONDON — Industry leaders warn that the UK’s burgeoning fintech and cryptocurrency sectors face a serious threat of talent and innovation loss if the government fails to tackle critical regulatory and funding obstacles.
In recent conversations with Finance Newso, several executives in the cryptocurrency space expressed concerns that stringent regulations imposed by local authorities are stifling growth. They highlighted that pension funds, which manage assets worth trillions, are overly cautious in their investment strategies.
Reflecting on the changing landscape, Jaidev Janardana, CEO of British digital bank Zopa, noted that the UK was once a leading force in fostering innovation, but now seems to prioritize safety to the detriment of growth. “A decade ago, we were at the forefront of competitiveness and innovation, but things have shifted. If I compare the pace of innovation now, the U.S. appears to be ahead, as do places like Singapore and Hong Kong,” he said, urging stakeholders not to become complacent.
Tim Levene, CEO of Augmentum Fintech, corroborated these sentiments, stating that the difficulties in securing funding within the UK might drive entrepreneurs to establish their ventures overseas, particularly in Asia and the Middle East. “Currently, it would be more beneficial to seek capital from markets like the Gulf, the U.S., or Australia,” Levene remarked.
Lisa Jacobs, CEO of Funding Circle, echoed these concerns, emphasizing the lingering adverse effects of Brexit on the UK fintech landscape, particularly regarding the recruitment of global talent. “As an industry and as a government, we must ensure the UK remains a prime location for startups,” she noted, asserting that despite having a strong ecosystem, ongoing efforts are necessary to sustain progress.
Crypto rules unclear
The UK is recognized for its dynamic financial technology scene, with companies such as Monzo and Revolut emerging as significant challengers to established banks. This rapid rise has mainly been attributed to favorable regulations that enabled tech startups to obtain licenses to offer banking and electronic money services with relative ease.
However, concerns persist among businesses engaged in cryptocurrencies who feel they have not yet benefitted from similar regulatory flexibility. “Many other jurisdictions are seizing the moment,” said Cassie Craddock, managing director at blockchain firm Ripple for the UK and Europe. She highlighted how the U.S. has adopted a more favorable stance toward crypto under previous administrations, while the EU has made strides in establishing clear guidelines through its Markets in Crypto-Assets (MiCA) regulation.
“The U.S. is creating momentum for the sector,” Craddock stated, adding that while the EU’s MiCA came into effect recently, countries like Singapore, Hong Kong, and the UAE are advancing with industry-friendly reforms. The recent draft proposals for regulating crypto firms from the UK government, however, have been met with caution from industry players, who anticipate that the specific details will be critical in addressing complex technical matters like stablecoin reserve requirements.
Rules on stablecoins unclear
A particular area of concern for both fintech and crypto executives is the regulation of stablecoins, a cryptocurrency type that maintains its value tied to a traditional currency. Mark Fairless, CEO of payments infrastructure firm ClearBank, expressed his ambitions to develop a proprietary stablecoin but noted that regulatory uncertainty has impeded these plans. “We see stablecoins as integral to our long-term strategy, but we require regulatory clarity to proceed,” he stated, sharing that ClearBank is currently waiting on approval from the Bank of England.
Crtpto industry advocates argue that the Financial Conduct Authority (FCA) has been excessively restrictive in granting registrations for firms wishing to operate in the crypto space. The FCA, which oversees the registration of firms under UK money laundering regulations, published a roadmap last year detailing plans for crypto regulation, which includes future discussions covering stablecoins and crypto lending, with a comprehensive regulatory structure anticipated by 2026.
The issue of “debanking,” where cryptocurrency businesses face challenges in securing accounts with traditional banks, remains a significant hurdle for the industry, as noted by Keith Grose, the UK head of Coinbase. “Debanking is a major challenge; it’s nearly impossible for crypto-related companies or individuals to access banking services,” he stated. “Without a level playing field, building the future financial system becomes difficult.”
A recent survey conducted by Startup Coalition, Global Digital Finance, and the UK Cryptoasset Business Council found that half of the more than 80 surveyed crypto firms encountered difficulties obtaining or maintaining bank accounts with major banks. Grose commented on the potential for the UK to get regulatory reforms right but cautioned that failure to do so risks enabling innovation to flow to other markets. “This sector develops rapidly, with stablecoins achieving a 300% growth last year, already exceeding transaction volumes of Visa and Mastercard,” he added, suggesting that effective regulation could embed stablecoins as a fundamental component of the UK’s future payment landscape.
