EU crypto bill ‘risks’ UK financial services

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Watch: Philip Hammond warns of ‘real risk’ to London financial services from EU crypto bill | The Crypto Mile

Former UK Chancellor Philip Hammond has warned that the upcoming EU Crypto Regulation Bill could create such an attractive business environment for the web3 industry that Brussels could eclipse London “in terms of innovation in financial services”.

The European Union will vote this month on the final wording of the Crypto Asset Markets Bill (MiCA). It is expected to make the bloc the first major global jurisdiction to install a comprehensive regulatory framework for the crypto industry.

The law is expected to lend credibility to the crypto industry, with licensed crypto-asset service providers (CASPs) expected to offer protections to investors under the MiCA across the EU.

Speaking on this week’s episode of Yahoo Finance UK’s The Crypto Mile, Hammond warned that if the EU strikes the right regulatory balance between freedom and restriction, the bloc could eclipse London as a trading hub for digitized financial markets.

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“I think there is a real risk, and frankly it’s the first time in 40 years that there’s been an issue where eurozone countries seem to be ahead of the UK in terms of innovation in financial services, Hammond said.

“While the UK was a member of the EU, the UK generally led the financial services agenda and was always first to act.

Former Chancellor Philip Hammond: “At the moment we are far enough from the UK to become a global crypto hub.” Photo: Aaron Chown/PA via Getty

“It is a very uncomfortable proposition to think that with the upcoming MiCA vote, we could see the European Union providing a more permissive and attractive trading environment for institutions and innovators than the UK.

The UK government is working to regulate the crypto industry through amendments to the Financial Services and Markets Bill.

Hammond said London needed to establish itself as the premier trading venue for digitized assets, to secure the future of the UK financial services sector post-Brexit.

The story continues

Read more: Philip Hammond on CBDCs, stablecoins and the place of crypto in global finance | The Crypto Mile

Hammond believes this revolves around Web3 innovation, digitization of traditional markets, and cryptocurrency trading.

“I hope that the very fact that the European Union is going ahead with its MiCA plan would wake up regulators and lawmakers in the UK, and simply underline that this is not a fringe activity experienced by a few third-tier jurisdictions, it’s mainstream,” he said.

The UK needs an optimal balance when setting regulations

Hammond said: “As always, when designing a regulatory regime for a new product, it’s a very careful balancing act; if you err on the side of being too accommodating, you risk may disasters occur and your reputation be trashed.If you err on the overly restrictive side, then the matter goes elsewhere.

“If you look back over the past 40 or 50 years, the UK has a good enough record of financial services regulation to strike that balance and not be the most accommodating jurisdiction, but accommodating enough to draw services away from more conservative jurisdictions, and hopefully we’re about to pull off that trick again.”

UK’s ambition to become a ‘global crypto hub’

In 2021, Hammond became a senior adviser to London-based crypto custody firm Copper, becoming the company’s chairman in 2023.

He described the UK as currently lagging behind other jurisdictions in terms of ambition to become “a global crypto hub”.

Read more: Philip Hammond: The shift from big finance to crypto is unstoppable

In April 2022, then-Chancellor Rishi Sunak planned to make the UK a global hub for crypto asset technology. Along with former Treasury Economic Secretary John Glen, he laid out a roadmap for the future of crypto in the UK.

This included crafting new legislation for a “financial market infrastructure sandbox” that can help crypto businesses innovate.

However, Hammond said: “At the moment we are far enough from the UK to become a global crypto hub.

“I see other jurisdictions around the world making significant progress towards creating broader digitized financial markets, which is the grand prize here.

“I hope it’s not too late, and I hope the UK steps up to the forefront of this action. But at the moment it’s the smaller jurisdictions that are in the running.

Should the UK follow the tough US regulatory stance on crypto?

“The regulatory environment needs to be safe, secure and efficient, and in my view, the United States has gone too far in effectively preventing certain players from participating in the digital asset market,” Hammond said.

“But, I don’t think that’s necessary given the size and sophistication of the players. I think the UK has the opportunity to lead a well-regulated and properly-ordered digital market, which is not one less more accommodating to these great intuitive players, as the United States seems to be becoming.”

He pointed to the problem of competing regulators in the United States. In contrast, the UK has a single regulatory authority for financial services, the Financial Conduct Authority (FCA).

“The United States has a bit of an intuitive challenge here, in the fact that there are competitive regulators in the United States, and every time a new product or market comes up, there’s always a feeling that different regulators are trying to position themselves around this.

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“We only have one regulation here in the UK for financial services, so it seems to me there is an opportunity now for the UK, as it has done successfully in the past, to identify a mistake, which is over-regulation in the United States, and thus create a more attractive environment in the United Kingdom.”

There is global competition to attract gamers to the web3 space.

Hong Kong has established its own crypto and digital asset regulatory framework, and Gulf states such as Dubai are also positioning themselves as attractive environments for digital asset trading.

The colonization of the web3 sector by traditional finance and web2 firms is progressing, and according to Hammond, jurisdictions neglect the growth potential of the sector “at their peril”.

Watch: Philip Hammond on CBDCs, stablecoins and crypto’s place in global finance | The Crypto Mile

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