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London has become a capital of blockchain technology with its VCs, incubators and wealth of talent. On Tuesday, panelists from Lloyds Banking Group, 11:FS, SmartLedger and Outlier Ventures, discussed the impact of Brexit on blockchain development.
Across Europe, blockchain is growing, with new hubs emerging in Luxemburg, Berlin, Zurich and Zug. When asked if this is a concern following June’s vote to leave the EU, the panel agreed there are much bigger problems facing blockchain than Brexit, not least those of regulation, trust and popular understanding. Just think back to the uptake of Internet banking.
Panelists also commented that investment in London has remained high. On the whole, they were optimistic. Jamie Burke, founding partner and CEO at Outlier Ventures, said “many investors and start-ups have seen Brexit as an opportunity”, with depreciation presenting a chance to get more value from UK investments, which, “they still see as superior”.
Although Simon Taylor, co-Founder of fintech consultancy 11:FS, saw the challenges of a depreciated currency, he was quick to recognise the value of FCA innovation in supporting the development of fintech, notably blockchain companies, in London. Project Innovate and its regulatory ‘sandbox’ were both cited as great opportunities for the growth of such companies in the UK. The FCA’s Project Innovate offers advice and guidance to start-ups and incumbents to take innovative ideas to market. The regulatory ‘sandbox’ is an opportunity for companies to test such ideas in a ‘safe space’, presenting an opportunity for blockchain companies. It is the hope that this will facilitate innovative financial products and services that could bring benefits to consumers and promote competition.
Nonetheless, as the pound recovers and the reality of Brexit comes into focus, London’s universities, wealth of finance and tech talent, forward-thinking FCA and the success of crowdfunding and VCs in raising finance, will be just as appealing as before.
More worrisome for start-ups, according to Mr Burke, is the cost of being there. Which, with the price of office space, housing more expensive than a small island and £5 pints, is plausible.
The reality is, investors in blockchain are doing exactly what they should be – carrying on.
Financial services will benefit a lot from blockchain. As noted by Simon Taylor, “reconciliations, breaks, errors, all of the headaches you have to deal with in post-trade… what we needed was a way to be sure facts are being replicated with great certainty between different entities. The way we did that previously was with a piece of paper and a stamp.” He explained that the headache of regulatory reporting and back office settlement could be simplified, made more efficient, faster, more cost effective and more transparent with distributed ledger technology (DLT), a function of blockchain. A distributed ledger would act as both a platform to execute transactions as well as record them, creating a single source of consolidated data that can be easily shared and accessed to meet reporting obligations as well as verify transactions in near real time. Smart contracts will also play a big role in reforming the existing system, acting as predetermined, immutable and self-governing entities, replicating facts and automating formerly manual actions, for example, releasing funds, as noted by Ismail Malik, CEO at Blockchain Lab and founder of SmartLedger.
Discussing blockchain’s broader applications, the link between financial services and other verticals was efficiency, primarily in enhancing existing architecture and processes. An example given by Anish Mohammed, Lead Security Architect at Lloyds Banking Group, was healthcare. He explained how changing demographics, rising costs and mounting pressure, will make blockchain a great opportunity.
Other beneficiaries of blockchain technology, according to Ismail Malik, included crowdfunding and the distribution of funds, such as disaster relief. Supply chain, insurance, machine to machine interaction and autonomous vehicle negotiation were all raised.
There is a long way still to go. However, the learning process that will come for both companies and the FCA through its regulatory ‘sandbox’ will be valuable, providing insight as to how blockchain could be incorporated to deliver solutions as well as inform the regulatory framework that will oversee it. The FCA has a key role to play in facilitating this integration and is so far riding the wave.
However, it must be careful to maintain regulatory cohesion if it hopes for this ‘right touch’ approach to carry it to shore. As the first of its kind to implement such a program, they have certainly set the bar. Call it a ‘guinea pig’, but if even some of the potential benefits are realised, London’s status as a fintech leader will be stronger than ever.
Facilitator: Stacey Mankoff, Managing Principal at The Mankoff Company.