Due to regulatory uncertainty, the United States is losing Web3 companies, which presents an opportunity for the United Kingdom. But in order to attract them to British shores, the U.K. will need to take its regulatory course, easing some of the conditions for cryptocurrency, according to a research group.
On October 2, the well-known Conservative think group Policy Exchange released a report on Web3 that included ten recommendations for the British government that it claimed would help the nation’s Web3 legislation.
Limiting the liabilities of people who own tokens in decentralized autonomous organizations (DAOs) is one suggestion offered in the study. The study uses a recent U.S. decision that holds any American who currently owns or has owned tokens in a DAO accountable for any legal infractions the DAO commits to illustrate why this is bad.
The study claims the UK currently has a fantastic potential to benefit from migrating Web3 companies out of the US.
According to thereport, cryptoassets worth £943 billion were traded in the US last year. According to a realistic estimate, the UK could legally seize roughly £29 billion of this activity, assuming that good regulation wouldn’t spur additional industry expansion, which it is likely to do.
Looking at a reasonable calculation, this would result in an additional £10.7 billion in assets and more than 36,000 jobs. These high-potential sectors are expected to expand and produce a lot of new, creative businesses, consumer goods, highly skilled jobs, and, of course, taxes.
The research also recommends that the Financial Conduct Authority (FCA), the main financial regulator in the United Kingdom, relax its current Know Your Customer (KYC) guidelines to permit the use of “alternative and innovative techniques,” such digital identities and blockchain analytics tools.
The paper agreed on ten proposals for how the UK can further improve its Web3 regulation and capitalize on the innovative potential of this technology. These included a call for secondary legislation and regulation implementing a new crypto-asset framework to embrace decentralization. The proposals also sought to offer legal safeguards and liabilities for DAOs and their members with assistance from the Law Commission.
“The risk-based anti-money laundering program standards set forth by the FCA should be adaptable and appropriate in order to take into account the technological and behavioral distinctions between blockchain transactions and transactions using fiat currency, as well as to accommodate creative AML solutions,” another of the proposals read.
Moreover, the paper wants to protect self-hosted online wallets, force the FCA to mandate that consumers receive clear disclosures regarding which stablecoins are truly “stable,” remove staking services from the FCA’s mandate, create a tax wrapper for crypto assets, and mainly soften the requirements of KYC.
One of the main regulatory obstacles cryptocurrency companies have recently had to overcome is KYC. The decentralized economy is predisposed to KYC issues by nature.
Many decentralized systems are built to let users maintain their anonymity and protect their personal data from any centralized authorities. As a result, many cryptocurrency businesses cannot identify who their actual clients are, which is unacceptable in the eyes of regulators.
Even the most resistant cryptocurrency companies have been forced to implement gradually stricter KYC requirements due to increasing pressure and penalties from regulators.
In August 2021, Binance made the announcement that in order to make deposits and trades, new users will need to present a government-issued ID and complete facial verification. This came after warnings from regulators in the U.K. and Japan, among others, that Binance was not permitted to conduct business in those nations.
The balancing between KYC needs from a governmental protection standpoint and the difficulty it brings in decentralized finance suggests that the proposals from the think tank are not that straightforward. However, if the FCA loosens its current approach, it could allow for the use of “alternative and innovative techniques,” such as digital identities and blockchain analytics tools.