Friendly regulatory policies were rapidly turning London into a capital for blockchain innovation, that is until last week’s decision by the UK to leave the European Union left some wondering if this market position will be impacted.
From establishing a safe zone for blockchain firms to passing a measure that exempted bitcoin from value-added tax, the nation had arguably helped pave the way for measures currently under consideration in the EU while putting pressure on regulators in the US to rethink their policies on FinTech innovation.
If nothing else, the EU referendum, nicknamed the ‘Brexit’, has brought an air of uncertainty into an environment that had long been lauded by the technology’s advocates as forward-thinking and permissive.
Prior to last week’s vote, many European companies had taken to incorporating in the UK to “avoid red tape in their home countries”, according to and digital currency specialist Jacek Czarnecki. But after the UK’s exit from the EU, he argued its appeal could decrease.
Czarnecki told CoinDesk:
“At least in short term London will lose as a candidate for [Europe’s] digital currency capital. They still have much to offer, but considerably less than before and moreover with a large uncertainty as to the future.”
If the UK’s vote puts its status as a digital currency leader among European nations in jeopardy, other cities are poised to take over.
Czarnecki said Luxembourg, Berlin and Stockholm are all positioned to become stating points of digital currency commerce in Europe, while Rik Willard of blockchain consultancy firm Agentic Group, adds Zurich to the list of cities that have proven attractive for new industry companies.
Time for renegotiation
To help minimize the fall-out from Britain’s vote to leave the EU, at least one member of the of the area’s blockchain community believes the commonwealth should engage in friendly negotiations with its neighbors in Europe.
Adam Vaziri, a board member of the non-profit education and advocacy group, UK Digital Currency Association, told CoinDesk:
“Depending on what is renegotiated that pragmatic UK influence on blockchain regulation may be deflated.”
In February, the FCA established a “safe space” to let UK firms experiment with financial technology, including blockchain, but that policy could be upended by the vote.
According to Vaziri, the change could be positive or negative. Currently, he said, the FCA can only exempt UK companies from its own rules, but EU mandates still apply.
“Depending on what is negotiated with the EU, you may end up with the FCA having even more discretion in how it deals with blockchain companies,” Vaziri said.
One interesting possible path forward is that the UK could join as an independent member of the European Economic Area.
Currently members of the EU are also members of the EEA, but non-EU member such as Iceland, Liechtenstein and Norway, are also members, an option available to the UK, according to Vaziri.
Under such a membership, UK companies would be subject to certain European financial regulations and passporting advantages, but it would not have as much influence over the making of EU policy.
All agreements honored
In addition to being a hotbed for startups from around Europe looking to partner with regional banks, the Central Bank of England itself has taken steps to explore the potential applications of blockchain technology.
For now, those agreements and others negotiated between UK companies and those in the EU will be honored, according to a statement by the Financial Conduct Authority (FCA), released on Friday. But that, too, could change.
From the FCA statement:
“The longer term impacts of the decision to leave the EU on the overall regulatory framework for the UK will depend, in part, on the relationship that the UK seeks with the EU in the future.”
Of note, Vaziri says that for now “there will be no impact on any existing passported entity” doing business in the UK and hoping to take advantage of laws that require EU member-states to honor some of each other’s laws.
One such company, Circle Internet Financial was awarded an e-money license from the FCA that gave it influence over regulatory policies presently being discussed in both the UK and elsewhere in Europe.
Circle and the FCA both declined requests for comment.
Brexit image via Shutterstock