The United Kingdom’s impending exit from the European Union has the economy on edge. Parliament has yet to approve Prime Minister Theresa May’s exit agreement and a so-called “no deal Brexit” is a looking like a real possibility.
Just a few months away on 29 March, the UK is scheduled to leave, and nobody knows quite how the laws and regulations that the EU currently govern will be affected, what the situation will be for EU workers, or what trade relations will be in place for the rest of Europe.
With these instabilities in mind, here are some of the effects Brexit may impose on the UK’s leading blockchain industry.
It is no secret that the City of London is Europe’s financial capital but many have questioned whether it can remain in this position when the UK leaves the Union. Many financial service providers are there, after all, to provide services to European clients from a location that adheres to all of the required regulation.
If the UK no longer follows EU finance regulations, it will likely fail to attract these international firms. Coinbase, for example, has already moved its European base from London to Ireland. Part of the blockchain industry’s success in the UK can be attributed to the existing infrastructure for firms and international talent that the City of London attracts. In this case, what is bad for mainstream finance also looks to be bad for blockchain.
However, Brexit also offers the UK a chance to create its own unique financial policies which have the potential to produce a more crypto-friendly environment than that imposed by the EU. While the Union requires firms to uphold strict know-your-customer (KYC) and anti-money laundering (AML) policies for their clients, Brexit would be the chance for the UK to create a more autonomous financial sector, although there has yet to be any indication of a move in this direction.
Another case that could work in the blockchain industry’s benefit is if the UK chose to adjust its DPA 2018 legislation (its version of Europe’s 2018 General Data Protection Regulations) which has caused much friction for operations built on immutable blockchains that do not readily allow the removal of data as the privacy regulations require. Any data regarding European citizens that is stored on a blockchain would still be subject to GDPR, although Brexit would give the UK an opportunity to create more flexible regulations compared to GDPR.
The blockchain industry faces the same challenge as every other sector in the UK regarding migrant workers from the EU. While the government has just launched a scheme that would allow current EU residents to remain living and working in the UK after Brexit, the plan has faced scrutiny over its impracticality in registering residents. This owes to the facts that the application only works on the most recent versions of Android phones, and a fear that they are not doing enough to let people know they must register themselves.
Europeans who fail to register on the Settlement Scheme could find themselves deported from July 2021.
London, the UK blockchain hub, is compiled of 14% European workforce, with 26% of workers coming from outside of the EU.
As it stands, Theresa May has ruled out the chance of the UK remaining in the Single Market and the European customs union after Brexit.
This will impact both businesses that use blockchain to export or import products between the UK and Europe, as well as those that provide services of any kind within the region. Services account for 70% of economic activity in the EU and the Single Market gives companies the freedom to offer these services anywhere within the Union.
The last few years have seen cryptocurrency exchanges such as Binance expand across Europe, but leaving the Single Market means they would have to operate with the UK’s own unique regulations. To keep up interest from exchanges, the UK will have to prove its worth the extra costs required to move operations locally.
Losing its voice
The UK has one of the leading blockchain industries in Europe, but Brexit could result in a loss of political power in drafting crucial legislation for the technology. For one, with no more Members of European Parliment representing the UK after Brexit, the country will no longer be allowed any official input in creating EU policy.
Pro-crypto MEPs such as Eva Kaili have proven how effective a positive voice can be in the governing body, with her efforts resulting in the crafting of the parliamentary Blockchain Resolution.
Blockchain and Brexit
It is not all doom and gloom for the industry, however. Blockchain has indeed been given a spotlight by the UK government for its potential in providing a solution to the customs crisis, being hailed as an opportunity to continue providing ”frictionless trade” with the EU.
Particularly valuable on the contentious issue of the Ireland border, blockchain has been hailed as a way for the government to track the movement of goods in a transparent, immutable, and non-invasive way. The UK’s finance minister Philip Hammond even called blockchain an ”obvious” solution to the problem.
An uptick in blockchain logistics solutions could well increase the levels of UK companies that adopt the technology, but financial services providers that utilize blockchain may find themselves having a more difficult time adjusting to the forthcoming new regulations.
May’s latest update in Parliment on Monday 21 January included a commitment to sticking to the 29 March Brexit date so there is not long left to see what the deal will look like, if there is one at all.
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