Britain's Prime Minister Rishi Sunak leaves 10 Downing Street for the House of Commons for his first ... [+]
This week a millennial with a graduate degree from Stanford and a previous career as a Wall Street banker became the U.K. Prime Minister, the first ever of Asian descent, and with a vision for the U.K. to become a hub for global crypto and digital assets.
If 42-year-old Rishi Sunak cannot deliver “Digital Britain” and kick start the stalled digital finance innovation agenda to drive tomorrow’s productivity, social diversity and inclusion, and economic growth, who can?
Sunak appears the best qualified leader in the G7 to succeed at this and the City of London and the financial services sector have high hopes of a savior after six years of the Government giving business the cold shoulder. Business is government’s best friend in an economic crisis, especially when it needs money, brains, and friends.
Sunak was welcomed to 10 Downing Street this week in the most difficult economic times in a generation and has some pretty big fish to fry. With double digit inflation, soaring energy costs, and food costs up over 15 percent on the year in the U.K., the economy is starting to bite people, and most cannot afford their mortgage rates doubling.
After 44 tumultuous days of the Liz Truss government that saw Chancellor (Finance Minister) Kwasi Kwarteng make £50 billion of unfunded tax cuts, the pound was sent plummeting and the U.K.’s largest pension funds were threatened with insolvency due to surging government bond (gilt) prices and unexpected calls on liquidity. Kwarteng was sacked, and Truss resigned days later.
“Stability Sunak” has brought reassurance back to the markets with the pound recovering most of its losses. This stability might be short-term though. With macro political and market conditions deteriorating, economists are forecasting a U.K. recession, and while an austerity budget might be good for the books it is unlikely to be popular with voters.
The people want economic stability back and an end to what appears to be a serial deterioration of the quality of life for many in the U.K. The Labour Party has a 39-point lead on the Conservatives in the polls and with an election looming in 2024, Sunak and his Government have their work cut out for them.
Battening down the hatches and steadying the Good Ship U.K. is only one variable of this complex equation. With the U.K.’s productivity growth at an annual snail’s pace of .5 percent for more than a decade, the country needs to retool for the digital future to boost its productivity and spur greater growth.
Low business investment, weak management and too few commercial patents are the main factors behind Britain's weak productivity cited by London School of Economics and the Resolution Foundation think tank.
With the U.K.’s crown jewel fintech seeing investment fall a staggering $9 billion in the first half of the year, down 65 percent already on last year, the dream of the City of London leading the world in digital finance is having a near death experience and needs immediate restorative attention.
Global fintechs and banks are transforming capital markets infrastructure through digitization and decentralization, and the U.K. is going to miss the opportunity to be a player in this new digital world and maintain its position as a leading financial centre if it does not act now.
Andrew Griffith MP, the new Financial Secretary to the Treasury, took the first move this week by including cryptoassets in the scope of regulated financial services in the Financial Service Bill which is expected to be passed in early 2023. This is a shrewd move - the U.K. has last mover advantage between the U.S. and Europe and must seek to be aligned and competitive on crypto spot markets and stablecoins.
Industry leaders have suggested the Government also focus on tokenizing the securities, commodities, and property markets, a much larger prize than just the crypto markets. With London Stock Exchange reform on the Government’s agenda, opening the listing market for private market digital securities is a game changer before we even get to tokenizing other markets.
The U.K. Law Commission has delivered proposals for law reforms on the legal status and ownership of digital assets which is now out for public consultation. By treating digital assets as a new property class of “data objects”, digital asset owners and investors will be protected by U.K. common law, the hallmark of global law.
There are many calls for regulatory reform of the U.K.s Financial Conduct Authority (FCA), especially following the crypto registration scheme. Whilst reform may be part of a greater and longer-term government agenda, in the short-term, clear policymaker guidance for crypto and digital assets as it relates to the FCA’s perimeter, along with new regulation is what is required to get the regulator on board.
That digital smart contracts for securities, commodities and property reside on hybrid blockchain technologies and are NOT cryptocurrencies is something the regulator is going to have to come to terms with sooner rather than later. Many firms looking to issue traditional assets on smart contracts are not crypto firms and are looking to accelerate the digitization of traditional asset classes to unlock greater investor value and as importantly, greatly improve price discovery and market liquidity.
The good news for the Government is that putting the City back at the heart of the global financial system and leveraging digital finance to transform the UK’s productivity may not require significant government funding. Industry will do much of the funding and heavy lifting, government must be the industry’s policy partner and put the right laws in place - the Government just needs to be, once again, open to working with industry.
With the U.K. out of Europe, it is no longer bound by the State aid rules that would have prohibited plans for tax subsidies for digital innovation and getting future tax incentives aligned to attract institutional investors is a real key to help unlock the greater funding of tomorrow’s Digital Britain.
Expectations are high for the talented young British Prime Minister. Industry is on deck to support the “Sunak Protocol” and kick start the next wave of innovation in digital finance. Industry knows the U.K. Government is listening, but it wants to see action, and will ultimately vote with its capital and talent, which is much more mobile than most in this borderless digital world.
