Crypto appears to have started something of a tug of war between the powers that be in the U.K.
Rishi Sunak, the former Chancellor of the Exchequer and runner-up in the recent race to become the new prime minister, announced in April that he wanted Britain to be a global hub for crypto. His subsequent resignation a few months later has been seen as something of a blow to this ambition.
However, his colleague Liz Truss, who pipped Sunak to the post to lead the Conservative Party and become PM, has reaffirmed her government’s pledge. She says she wants to embrace crypto opportunities and steer the U.K. to become a dominant center for blockchain technologies through her Financial Services and Markets Bill, which she believes will equip regulators with the powers to oversee the industry’s growth.
So far, so good. However, this is in complete contrast to the view of the governor of the Bank of England, Andrew Bailey, who has warned that cryptocurrencies have “no intrinsic value” and investors should be “prepared to lose all their money.”
The Financial Conduct Authority (FCA), the U.K.’s financial regulator, has taken a similarly dim view. Under the guise of protecting the public, it has recommended that people should only be allowed to invest up to 10% of their net worth in cryptocurrencies. Which, if passed into law, would be a spectacular overreach.
We can only guess at the real motives of these hugely influential bodies. While consumer safety is a noble cause, their vested interest is likely driving their agendas. Crypto threatens each power base, and they will be eager to protect that power.
Ultimately, the government will decide how the U.K. approaches crypto. But the Bank of England and FCA can, if they wish, become thorns in the side of the country’s lawmakers, throwing obstacles in their path and slowing progress.
The FCA’s ability to thwart crypto companies’ ambitions to achieve regulatory approval is well-documented. In March this year, many companies risked missing the deadline to register with the FCA because of the glacial pace at which the regulator moved to approve applications.
This approach is in stark contrast to Dubai, which is proving to be an excellent example of how to create a hospitable environment for crypto. Having recently decamped here from the U.S. for the past six months, I have been somewhat blown away by the welcome our industry is receiving.
An essential part of this “rolling of the red carpet” is how the ruling royal family approaches regulation. While it feels like many other nations are looking to squeeze crypto into the existing regulatory architecture, Dubai’s regulators are looking for a more collaborative approach.
Rather than blocking the industry’s ambitions, successful crypto companies are invited to gain licensure and operate in the region. More importantly, the regulators are willing to listen to the community and write the legislature so that it is tailored to our unique needs and machinations. This approach is smart because it means that the legislation will be based on how blockchain companies operate and how the technology works.
Whereas in other regions, a startup would be kept at arm’s length and find it very difficult to engage with a regulator, that’s not true in Dubai. It has set up the Virtual Assets Regulatory Authority (VARA) to collaborate with the industry specifically. To expedite the setup process, the regulator is enabling access at the very highest level.
Vitally, the regulators recognize that they don’t understand the technology as well as the people who work in the industry and are in a listening mode in order to gain the insight needed to make it a success. At the same time, they are ensuring that the regulatory environment is one where you create a safe place for consumers while not being restrictive to companies operating in it.
Thanks to the region’s many free-trade zones, the setup mimics the legal structures many western entrepreneurs are already familiar with. In addition, there will be no corporate, income or capital gains tax for at least 30 years on new businesses set up in these free-trade zones. The message is loud and clear. The UAE’s regulators say, “why not leave your terribly antiquated, archaically built, overbearing government, and we’ll pay you to do it.”
This makes sense, especially in Dubai, where the primary revenue drivers are tourism and real estate. Rather than generate tax revenue, they want to attract investment into the country. When you compare tax revenue to the money that can be made from investment, it’s clear where the greater revenue will come from. Especially when you own everything.
This is an important point. There are a number of factors that give Dubai an advantage over the U.K. and other large economies like the U.S. and the E.U. State ownership of land, energy and resources means that every dollar of investment will bring in revenue over the long term, and it has the luxury of being trillions of dollars in surplus.
But most importantly is the vision for the country and the region. While most governments concentrate on tomorrow, the UAE is thinking about the next 100 years. It wants to become the hub of everything. Not only in crypto but in finance generally as well as other innovative industries.
Abu Dhabi is building one of the largest esports arenas in the world, and Dubai’s crown prince has announced that he would be making a large investment into a metaverse to the tune of billions of dollars. While the British government is making all the right noises, it is clear through the Dubai crown prince’s actions that he wants Dubai to be at the forefront of innovation and technology waves.
While many will consider this a colossal gamble, it is one worth making. The stock market is based around two major exchanges in the U.S. and Japan because of their opening hours. Imagine if crypto — an industry that never sleeps — was to become as big. You are talking about hundreds of trillions of dollars all flowing through your country.
Further, while the UAE’s currency, the dirham, is pegged to the U.S. dollar, the sands of commerce are slowly shifting. Saudi Arabia has begun offering its first non-USD-based bonds, while other oil-driven economies are beginning to accept other forms of currency as well. Leveraging cryptocurrency and cultivating an ecosystem that inherently works with the technology is as much a hedge against a change in the monetary system as it is a bet on new businesses.
Any of these facts present a significant enough incentive to give the establishment of a global hub a shot. If the other nations don’t move more quickly, they may miss the opportunity to do so.