London needs to learn from the Swiss if it’s to maintain its status as a global crypto hub
by Norman Wooding – founder and CEO of SCRYPT Digital
Switzerland’s reputation as a banking centre didn’t happen accidently. Nor did its much newer reputation as the world’s most mature crypto hub.
As an English national, I was hopeful when UK Prime Minister, Rishi Sunak, spoke of making the UK a global crypto hub. However, it’s hard not to feel underwhelmed by his progress.
The top 50 2022 report from CV VC shows Switzerland fared much better than most in the recent crypto downturn. Not only did it maintain the number of businesses residing in Crypto Valley, but the top 24 businesses saw their valuations increase by 55% over 2022 despite crumbling asset prices.
This is largely due to confidence in Switzerland’s regulatory framework and political stability. It’s the same reason why it has attracted some of crypto’s brightest, biggest, and best – including the likes of Ethereum and Aave.
Meanwhile, The UK is still getting to grips with how each asset should be defined, regulated, and taxed. A report on digital assets was submitted in 2018, and it was only last year we saw anything like progress with proposed regulations around stablecoins.
We’re expecting another report from the UK’s Cryptoasset Task Force early this year looking at the wider spectrum of cryptoassets. While it’s progress of a kind, it begs the question of how many reports will there be before any movement is made on Rishi’s promise.
Until more expansive regulatory requirements are outlined and enforced, businesses can apply for UK authorisation under AML and CFT requirements. For many institutions, this is the very bare minimum. Any institution wanting to partner with a digital assets business in the UK must pay extra attention to governance and due diligence processes. Just because a UK-based crypto business isn’t laundering money – it doesn’t mean your assets are being handled safely.
Understandably, as the financial capital of the world – it’s hard for the UK to make room for new concepts, ideas and technology. However, Switzerland was once known for being a conservative country most suited to protecting ‘old money’. There were doubts it could jump the generational gaps to the cutting edge – but it did.
Switzerland’s “edge” can be described in three words: understanding, collaboration, and decisiveness.
From the outset, Switzerland understood crypto as an asset class and defined it as such. Due to this, it only needed to tweak its existing financial services regulation and law to include digital assets. The fact Switzerland’s digital assets regulation is akin to its TradeFi environment means institutions not only feel its familiar ground, but also have faith in its protections.
An event like the FTX collapse simply wouldn’t happen in Switzerland. A good example of this is when an FTX subsidiary attempted to acquire the Swiss Neue Privat Bank but was blocked by Switzerland’s Financial Market Supervisory Authority citing insufficient regulatory oversight over the group’s other global activities.
But it’s not as simple as laying out the rules and using an iron fist to ensure they’re followed. Switzerland took everyone with it on its journey: the regulators, the banks and the entrepreneurs.
As the CEO of a Swiss business, my voice is heard. I can speak to FINMA about the needs of my business and its clients. If we want to offer a service that’s not covered by existing regulation, we work closely with the authorities to help develop the appropriate regulation and risk management protocols for the product. Only when it’s agreed by both parties can the service then be offered to clients.
In contrast, the UK is taking a top-down approach. While the separate authorities are collaborating, they’re not actively involving the business minds that their decisions will ultimately affect. This will likely cause further delays – or worse still – make the UK an entirely unwelcome environment for the adoption of digital assets and blockchain technologies.
The lack of clarity around FCA licencing has already seen many large businesses leave the UK and set up shop in more welcoming territories.
The UK has the money, credibility, and history to become a global crypto hub. But if it is to reach its potential it will need to learn from Switzerland’s example.
- Be quick: the UK doesn’t want to be in a position where entrepreneurs have decided to set up elsewhere by the time it has got a suitable regulatory environment.
- Use what you have: the UK already has a very advanced regulatory environment for traditional finance – while it doesn’t suit crypto 1:1, authorities need to define different assets and services quickly – then use existing frameworks to add protections for institutions and consumers where possible.
- Be flexible: utilise a principle-based approach to fuel innovation while ensuring different service offerings meet a minimum quality, governance, and risk management requirement.
London has the world’s attention when it comes to crypto and this next wave of maturity post-FTX. It needs to give innovators, institutions, and investors confidence and do good on its promises soon, or else it will be left behind.