An article published on Forbes on 31 August 2018
By Pawel Kuskowski
Featuring: Big Innovation Centre claims that by 2022, the UK will be a global hub for blockchain technologies and the crypto economy.
By 2022, the UK will be a global hub for blockchain technologies and the crypto economy. That is the claim of a new report from the Big Innovation Centre, DAG Global and Deep Knowledge Analytics, released last month. It’s good news, but why the four-year wait? Why is the UK, the global financial heavyweight, with a liberal market economy, smart regulatory environment and excitement for innovation, not a leader now?
There is a vital relationship – a friendship – which is missing from the equation and stymieing growth in the UK: that between banks and crypto-exchanges and crypto-businesses. When I speak to those in the blockchain industry, financial institutions and regulators, the conversation always turns to this topic. Without cooperation between exchanges (the platforms enabling cryptocurrency-fiat transactions) and banks (the institutions that have transacted, and dealt with the transactions of others, for centuries) crypto and blockchain technologies cannot become mainstream. Every transformation we know cryptocurrencies and blockchain can bring – from vast reduction in transaction costs to serving the underbanked – cannot come quickly to fruition without mass adoption from banks and financial institution.
It may not be sexy, but the way to bridge these two groups lies in compliance.
First, traditional financial services firms should acknowledge that exchanges and other cryptocurrency companies are increasingly taking a proactive approach to self-regulation in addition to compliance with identified regulations such as anti-money laundering. Earlier this year, for example, seven UK-based firms launched CryptoUK to promote best practice. Members sign up to a code of conduct which covers due diligence, customer protection in the event of insolvency, and pricing transparency. In the crypto industry, players know that taking a proactive regulatory stance in areas such as anti-money laundering (AML), anti-fraud and security will likely avoid any crackdowns in the future.
And banks should be aware that these companies, in addition to establishing a regulatory consensus within their own market, are already reaping the rewards of utilising blockchain technology. Thanks to blockchain, the technology that underpins cryptocurrencies, they have faster, more secure ways to store and move value which are cheaper to run. Cooperating to understand, rather than ignoring, should, therefore, be the way forward.
Second, building harmonised compliance processes for banks and crypto-exchanges will engender cooperation, and innovation. Tools that give visibility to banks on transactions coming in and out of exchanges, and visibility to exchanges of transactions that banks have internally on their books, are key. So too is the ability for both parties to see any high-risk activity and manage that in a live environment.