For years, the UK government has signaled its ambition to become a global crypto hub, but for those building the infrastructure, the pace of progress tells a different story.
While the EU implements MiCA and offshore jurisdictions attract talent with favorable tax regimes, London remains stuck in the consultation phase.
To understand the real impact of this regulatory lag, Invezz spoke with Tim Meggs, Co-Founder and CEO of LO:TECH.
Leading a London-based firm that provides real-time transparency across Centralised Exchanges (CEXs) and DeFi, Meggs has a front-row seat to the market’s plumbing and its friction points.
In this candid interview, Meggs argues that the UK’s pursuit of “quality” regulation may arrive too late to stop the exodus of innovators to Singapore or Portugal.
He dissects the Bank of England’s controversial proposed stablecoin caps, characterizing them as a defensive play rather than consumer protection, and explains why tax efficiency, not just legal clarity, is now the primary driver for token projects.
Excerpts:
Invezz: The UK is consulting on stablecoin rules while the US has the GENIUS Act, and the EU has MiCA. How is this regulatory timeline affecting token projects’ decisions to launch or operate from London?
Tim Meggs: Regulation can be useful for a country in terms of attracting and retaining talent, but that competition operates down a couple of dimensions.
Being the first regulator to move into a space, getting first mover advantage is one dimension, but there’s also the quality dimension. That’s important as well.
We’ve seen other regions move first with good quality regulation into the space, and that solidifies first mover advantage from a regulatory perspective.
It’s definitely something that the UK regulators are behind on, and whether that first-mover advantage that other regions have now is so entrenched is yet to be seen.
What we do expect when the UK regulators produce coherent, comprehensive regulation addressing digital assets is that it will be quality regulation, and that might be enough to stem the flow of people that we’ve seen.
But we’ve had at least 7 or 8 years of other regulated regions attracting talent, both through the quality of their regulation and the first mover advantage aspects, but also tying that with a lot of incentives for people to be building there in digital assets.
While the UK is still consulting on stablecoin rules, I don’t think you’re really gonna see that effect where people choose to build tokens.
Yes, there are some talented teams who operate out of the UK in terms of where they’re writing software, but these token teams will almost certainly be incorporating the entities that issue and control their tokens outside of the UK, and that’s just the way it’s been for a long time now.
Stablecoins are slightly different because they touch so much of the fiat payment rail infrastructure that they almost certainly
have to launch with regulation as part of their offering from day one.
So if you’re talking about stablecoin tokens in particular, looking to get launched in the UK, they will be looking to get regulated as much as humanly possible under the current patchwork of regulation that’s available.
Token projects generally? I don’t see them choosing the UK to launch.
Invezz: LO: TECH provides real-time token liquidity visibility across CEXs and DeFi. Why aren’t regulators building direct data feeds from firms like yours into their supervisory frameworks?
Tim Meggs: LO:TECH’s market data service produces tick-level information on both centralised and decentralised venues and protocols.
It’s exactly the sort of tool that should be used by a proactive supervisory body that wants to ensure that no bad behaviours are occurring within
entities that fall under its supervisory remit.
There is often the problem that these entities, whether centralised or offshore, don’t fall under strict regulatory regimes that some of the more advanced regions and countries have already adopted.
And on the DeFi side, it’s very hard to determine where these protocols are being run and who should have supervisory responsibility for them.
However, as we’ve seen in traditional finance, particularly in relation to centralised equity venues and others, proactive monitoring of transactions in almost real-time or in real-time is exactly the sort of thing that a sophisticated regulator should aim to do, and it helps weed out
all sorts of nefarious behaviors.
Invezz: Token liquidity is fragmented across venues with significant execution costs. What are the main technical and regulatory barriers to seamless cross-venue execution in the UK market?
Tim Meggs: Cross-venue execution within the UK market is a bit of a misnomer in that the majority of crypto flows don’t happen in the UK or even within entities that are based in the UK.
The majority of price discovery in the space occurs in venues elsewhere. Often, these aren’t even the major US venues either.
From a regulatory perspective, if a large entity needs to engage with a regulated venue, they are somewhat restricted in terms of where the venues offer or are covered by regulation, versus the amount of volume that these venues have.
From a technical perspective, cross-venue, cross-protocol execution is becoming something that more people are able to offer.
LO:TECH has smart order algorithms that are able to offer execution across multiple venues, including DeFi protocols.
The main technical problem here is the lack of a prime broking and clearing infrastructure that covers all of these venues.
You need to have assets on each of these venues or protocols to be able to do correct best execution on a cross-venue basis.
The industry as a whole needs to evolve to a mechanism where execution is separated from settlement and clearing, as we have in the traditional finance space, so that execution can occur where the best prices are, and then settlement occurs outside of that mechanism, meaning that assets don’t necessarily need to be placed on the venues in advance of the trade occurring.
Invezz: The BoE’s proposed £20k retail and £10M business holding caps have generated pushback, which aspects will likely change, and what’s the exemption process for institutional clients?
Tim Meggs: The Bank of England is certainly going to have a conservative approach to stablecoins.
They are the primary issuer of money in the UK, and any challenge to that, particularly GBP-based stablecoins, is gonna be met with some strong resistance by them.
The holding caps have been badly interpreted by a lot of people in terms of the press coverage that we’ve seen.
If you actually read through the documentation, the exemption proposals are quite clearly stated to include anyone whose normal business would require them to hold more than the 10 million cap.
However, that exemption process looks like it is yet to be detailed.
The closest we get is the inference that this exemption process might be run by the issuers of the stablecoins themselves.
So yes, some sense in terms of exemptions for people whose normal business would require them to hold more than 10 million pounds worth, but no clarity on what that exemption process looks like yet.
What is more nefarious, I think, is the 20,000 pounds cap on individuals.
Those who can get up to 20,000 pounds worth of holdings in stablecoins are going to be the more sophisticated end of the market, who might want to have significantly more than that in their portfolio for various reasons, in terms of being able to move money easily across the ecosystem, but also across borders.
That I think is probably a defensive play from the Bank of England, which is dressed up as looking to protect retail but really is there to stop a flood of people moving to stablecoins, where it’s slightly easier to move money around, and yields can be achieved outside of potentially regulated mechanisms.
Invezz: LO: TECH was built on transparent market making. How do you advise token projects on compliance when UK regulations are still being finalized?
Tim Meggs: It’s not really LO:TECH’s business to be in recommendations around compliance for token issuers.
We do partner with several compliance specialists and compliance consulting firms, and we will always introduce our prospective market-making clients to this suite of partners that we have, whether it’s tokenomics firms, compliance consultancies, or go-to-market and listing specialists.
However, what I would say is that the majority of token issuers aren’t looking to issue within the UK, with the caveat being GBP stablecoins being the obvious exception from that.
What we find is that most token projects are issuing within well-established offshore jurisdictions where both regulatory regimes have been clear for a long time, but tax efficiencies also come into play.
And that spills over to where teams want to locate and build.
If you’re gonna launch what you believe will be a hugely successful token project, you’re gonna think about how the tax situation impacts you if that means you’re looking to exit large numbers of tokens at some point.
Where the tax situation is more favourable for builders and entrepreneurs, you will naturally find more of the digital asset community building there.
Invezz: What single regulatory or operational change would make London more competitive with Singapore and New York for digital asset projects, and what feedback are you receiving from the FCA/BoE?
Tim Meggs: It’s not so much what single regulatory tweak or change could cause the difference; we need to see comprehensive, complete digital asset regulation coming out of the regulatory bodies within the UK.
We will get there, but it will be a long time too late for a lot of entrepreneurs and builders in the space. I think that’s just a fact.
And I’m sure the regulation when it comes will be tilted towards sensible, institutional, and fintech building.
However, the wider issue here is the current tax regime within the UK, both from a personal, corporate, and crypto viewpoint.
You’re not gonna find builders looking to launch their businesses and their tokens in the UK when there’s a lot more favourable tax situations for builders within other jurisdictions, right from Portugal through to the Middle East and out to Singapore.
This trickles through both in terms of how crypto-specific tax is treated, Portugal being a great example, and how business in general and entrepreneurs are treated, with Singapore being one where there are a lot of incentives for people to build in the space.
So until the UK gets that right, you can put whatever sort of good legislation you want around the regulatory side, but the tax situation just makes it very hard to be attractive as a region.
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