We take a look at recent developments in the UK regulatory landscape in the light of a16z's decision to open a London office.
Very little top-level movement since February, but what we have seen is promising re: a sensible, laissez-faire regime continuing in place
a16z move suggests consideration of London by US firms as a neutral ground/safe haven; remains to be seen how that thesis will play out
A happy London Tech Week to those who celebrate. You could be forgiven, perhaps, for missing it; the 3-day conference at the QE2 Centre, and the associated buzz around it, is for the most part the usual vague, navel-gazing nonsense that London conferences are renowned the world over for, sound and fury amounting to very little that’s even interesting, let alone useful. For those in crypto in particular, these tech generalist events are particularly apt for landing somewhere between dull and infuriating, and one blessing of the bear market has been that the dullest among us have fully embraced the AI revolution and left us alone.
Obsequious ranting aside, we bring it up because the real purpose of London hosting these sorts of conferences is to put on a show of caring on the end of politicians and business leaders; and, before the headlines were fully captured by the honours’ list drama, we saw a good attendance from those attempting to get in on the game. Prime Minister Rishi Sunak kicked off proceedings with a keynote and fireside chat; mayor Sadiq Khan and Chancellor Jeremy Hunt both dropped in within the first hour. Opposition leader – and, in most eyes, Prime Minister in waiting – Keir Starmer showed up early on the second day, and perennial crypto ally Grant Shapps also made an appearance.
There was, as usual, nothing particularly interesting in anything said. Sunak said nothing about crypto or blockchain (even in their PR-friendly guises of ‘web3’ and the ‘metaverse’); neither did Starmer or Khan. What Sunak did do is pop up later in the day on another press release – namely, Andreesen Horowitz’s announcement that they will, for the first time, be setting up an office outside the US in London, as well as extending their crypto ‘accelerator’ program for startups into the country (and European region) next spring. To quote Sunak: “We must embrace new innovations like Web3, powered by blockchain technology, which will enable start-ups to flourish here and grow the economy.”
None of this will excite even the most wishful of tea-leaf watchers, but it seems a good springboard for talking about a couple of things. First, the UK regulatory approach. We wrote on this extensively back in February, shortly after a call for submissions by the Treasury on the future financial services regulatory regime.
The call for submissions has come and gone (closed on April 30th), and as it stands, we have not heard too much from most corners. The one big update we did get happened last week, when the FCA announced that it would be introducing a raft of new rules for the promotion and sale of crypto investments; most of these are still fairly vague and pending unspecified future legislation, with the big headlines point being a ban on signup incentive schemes (this is targeted both at firms like Coinbase that offer rewards for signup and ‘education programs’, and at far less legitimate multi-level marketing schemes and affinity frauds that plague certain communities in the UK in particular) and a cooling-off period between signup and investment for retail clients.
Of course, this is all front-end, retail-facing stuff – and that, essentially, is the point. The FCA is concerned with consumer protection and little else, and outside of them, the approach is still fairly laissez-faire. This will continue to be the case for as long as authorities can sustain. We reiterate our view in February and previously here: on the whole, the UK is likely to be a good place to do business for crypto companies going forward because of that approach. It is an approach that has helped to sustain London as a financial services capital far beyond the power and the prestige of the nation that it is attached to, and will continue to do so.
However, if one is waiting for regulatory clarity, one is likely to be kept waiting. There has been no show of appetite for any particularly unique regulatory frameworks being set out for crypto exclusively; the intent still seems to be to keep them vaguely under the general auspices of the Financial Services and Markets Act, and only add specifics when absolutely pressed to do so. In most cases, we think this is a superior operational approach to that seen on the continent; however, it will leave something to be desired for certain activities and compared to certain jurisdictions.
We particularly think this tends to still skew positively because of the local party political climate. The next UK election will take place no later than January 2025; while it would not be unprecedented (as happened in 1992), the Labour lead in polls at this point is so significant that it is generally assumed that we will see a change of government by then no matter what happens.
The UK climate on crypto in partisan terms is similar to the Trump era in the US; its opponents on the left are vitriolic but not that numerous, the majority of politicians on both sides signal ambivalence, and despite the odd attempt here and there to push a narrative, in general, it isn’t a partisan political issue. Going into an election where the more pro-crypto party will almost certainly lose, this is a welcome state of affairs on the whole, and long may that continue, especially given that there isn’t an obvious Gensler-like trojan apparent in the ranks on the Labour side as it stands.
Onto a16z. At the very least, a move like this demonstrates a certain amount of signalling with respects to crypto VCs and their future in the US. If US regulators are determined to intensify the witch-hunt, the next entities up in terms of their economic status, place within the space, and political influence (or lack thereof) will either be crypto VCs (of which a16z are arguably the single most prominent, especially with Paradigm looking to pivot away from crypto and Jump Capital’s uncertain future) or their portcos (in the form of DeFi companies and protocols with significant manpower presence within the US).
The messaging here is that a16z are looking to seriously expand into Europe in a way they generally have not done before. We find this very hard to believe, because if one wanted to do that, one would set up in Paris, Lisbon, or Barcelona, given the post-Brexit border situation among other things. The opening of a London office seems more of a testbed of whether London could work as a home-away-from-home, or alternatively, literally just a home for US founders and developers who want to keep working on and in crypto. There is a lot to be said for the UK culturally and linguistically on that front; it is worth remembering that the de jure place for doing this sort of thing prior to around 2018 was predominantly Hong Kong, for instance.
The note of caution that we have to sound here is that it is just that – a testbed. The only real commitment that a16z have made is to bring their accelerator program, Crypto Startup School, to the capital, but this isn’t as significant as it may seem; in the words of a16z general partner Chris Dixon, “big VCs are spending 5% of their budget generating captive leads for their real business: investing $10m into a companies [sic] at the post-seed stage” (h/t Laurence E. Day) – what a16z are essentially doing here is making a very small investment sound like a large one.
Of course, at the end of the day, it is better to at least have that lane open. Both the UK and Europe have historically been starved for VC funding (in crypto and otherwise) compared to their US counterparts, and even if the UK ends up being a crypto Casablanca of sorts, it would be mutually beneficial for all involved. However, what we are seeing are baby steps only – the start of a potential quick pivot out of the US after the events of the last nine months – and that does need to be understood. The thing to emphasise, again, is that we are only seeing the start of the UK figuring out its approach – not the end.