Walking down the streets of Madrid on June 24th, 2016 during a business trip, I began to hear murmurs around every corner. I don’t speak Spanish very well, but there was one word I could make out, “Brexit”. This topic seemed to have been on everyone’s mind for the prior few weeks as I traveled around Europe, visiting Amsterdam, Paris and Madrid. However, on that day, the shock and awe in the voices of nearly everyone in Europe was palpable, even to foreigners who didn’t speak the language. The Brexit was, despite the campaign that led to it, entirely unexpected, and there are a lot of puzzling implications for the Bitcoin and blockchain industries.
London is to the European Union as Manhattan is to the United States. Global finance depends on “The City” in the same way it depends on Wall Street. During my travels, when meeting enterprises the question that would often come up was, “Who are your banking partners and where are they regulated?” London’s dominance of financial services, representing 9.6% of the United Kingdom’s GDP and with London rivaling NYC as the largest financial center in the world, has been maintained and fostered by the work of the Financial Conduct Authority or FCA, the UK’s banking regulator. This has placed the FCA as, if not the most, one of the most well respected financial regulators within Europe.
Even though blockchains present themselves as inherently trustless systems, trust is still required when working with companies building private blockchain technology or applications on top of public blockchains. Having relationships with banks regulated by the UK has a distinct advantage from a trust and pedigree standpoint, especially when talking with enterprises. This is especially true when working with the bitcoin blockchain, because of all the FUD and bad press around the technology. Obtaining the blessings of the U.K.’s regulatory agency would almost immediately dispel those concerns.
That has all changed. One big advantage of being part of the E.U. is the ability to passport a financial license. When you get a license for financial services in one country, you are able to passport this license to other countries, meaning you do not have to spend money on applications and bonds for each country, learning the languages of all the different member states and then waiting to go through the slow bureaucratic application process for each country. This is a stark difference to the U.S. model, which requires licenses for each of the states, except Montana.
Now that the U.K. is no longer part of the E.U., it is uncertain they will keep the passportability of their licenses. This is incredibly important for startups in the Bitcoin and blockchain industries when choosing a headquarters within Europe.
I recently sat down with Marieke Flament, the European managing director for Circle, a Bitcoin blockchain company which has raised over $130m in funds, recently obtained an e-money license in the UK, and established a partnership with Barclays.