Brexit Britain's Brave Stand Against Bitcoin
(Bloomberg Opinion) -- It’s good to see politicians belatedly waking up to the risk of crypto-currencies. British lawmakers are banging the drum for the regulation of Bitcoin, Ethereum and their brethren in order to protect consumers. It may be too late for all those unfortunates who got burned this year, but it’s still a better look than George Osborne eagerly using a Bitcoin ATM back in 2014.
Yet there’s little to suggest Brexit Britain will have the financial muscle or diplomatic clout to do much beyond grab at low-hanging fruit when it comes to digital cash. The fight against money-laundering and financial crime needs serious funding and regional co-operation, both of which will be hampered by an exit from the EU.
Indeed, any international push to properly regulate the crypto-cowboys would be laudable. The possibility of fraud and market manipulation is absurdly high. There has been $2.3 billion in exchange hacks and scams over the past seven years, according to research firm Crypto Aware. There’s also the billions channeled through money-laundering and white-collar crime. Unsophisticated retail investors are a prized target. Plus there’s the problem of the size of digital currency markets. While it is tiny relative to traditional currencies today, crypto has the potential to destabilize the financial system tomorrow.
The dream for governments is a clear regulatory framework that would somehow keep all the good stuff that blockchain technology is promising to generate – jobs, taxes, output – while safely shunning all the nefarious activity that we know Bitcoin and its ilk allows for.
The U.K. Treasury Select Committee calls for the country’s Financial Conduct Authority to be given legal powers to protect consumers and maintain market integrity with regards to Initial Coin Offerings and crypto-currency exchanges. It calls for anti-money laundering regulation. The committee’s rosy view is that this would let the City of London become a global digital currency center.
But how is the FCA meant to achieve this without more money? This is a watchdog that has one employee for every 15 firms it polices. Brexit threatens to take up even more of its bandwidth. FCA chairman Charles Randell said recently that spending an estimated 30 million pounds ($40 million) on preparing for an EU departure had meant “difficult decisions” on his budget elsewhere. Presumably he hasn’t factored in the regulation of thousands of crypto-currencies and exchanges.
Plus a Brexit Britain that goes it alone on regulation might miss out on broader efforts such as the EU’s anti-money-laundering directive that now covers crypto-exchanges. Other jurisdictions that have pitched their own tough rules – like New York – have found exchange activity to be harder to get a grip on than expected. There’s always a country that’s willing to offer crypto-folk an easier life in exchange for their business.
A simpler, though less headline-grabbing, way for Britain to get to grips with its financial crime problem would be cleaning up some of the firms registered with Companies House. That has been a conduit for shell companies and scams worldwide. U.K. corporate entities made up a large part of the customer base of Danske Bank’s Estonian branch, which is at the center of a vast money-laundering scandal.
Crypto certainly needs a leash, but the City can’t hold it on its own.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Opinion columnist covering finance and markets. He previously worked at Reuters and Forbes.
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