London needs a new financial services story – and it should be crypto, says former chancellor Hammond
Back in 2017, a word association for then-Chancellor Philip Hammond may have conjured up the likes of staid and steady over innovative and adventurous.
Theresa May’s right hand man oversaw a turbulent period for the country but he was the last man in Number 11 to stick to the Office for Budget Responsibility’s forecasts. While his later successor Sunak struck out on flights of flashy fancy in tech and fintech, Hammond handled the role in a way that could have been deemed largely in character – a chancellor in the traditional mould, perhaps.
And so it has proved all the more eyebrow-raising he now finds himself as the respectable face of an unlikely topic in British discourse: crypto and digital assets. But, as he tells Morning Wire in interview, “I long since gave up worrying about raising eyebrows.”
“I look at things from the perspective of whether I feel comfortable with them, whether I think they’ve got a good, sound narrative and whether there’s a business proposition there,” Hammond says. “Nobody wants to be involved with a business that isn’t going to succeed.”
Hammond’s association with the world of digital assets came after he was called in as a senior adviser to crypto custody firm Copper back in the halcyon days of late 2021, when crypto was riding the crest of a wave and valuations were booming.
The market has shifted somewhat, to put it mildly. And Hammond’s role and enthusiasm have had to shift with it.
Crypto Slowdown
Soaring inflation and sharp rate hikes last year sparked an abrupt end to the crypto and digital asset mania, as investors pulled back en masse and a wave of high-profile names imploded.
Hammond’s firm Copper was forced to slash its headcount but bucked the worst of the sector slump, raising $196m in October. Hammond, who holds a personal stake in Copper and became chair in January, says the past 12 months have been a period of growing up for the firm and its peers.
“Periods of very fast growth often don’t coincide with periods of huge attention to detail, and I think across the industry there were some signs of rapid growth syndrome and [some signs] of those who are going to be long term survivors,” he adds.
Copper, he claims, is now “90 per cent” of the way from becoming a “very fast-growing slightly excitable, tech-focused business, to being a grown up infrastructure provider”.
Growing up has been thrust upon the sector in large part as policymakers and regulators ramp up their scrutiny of crypto firms in an effort to prevent contagion in future.
Ministers have moved to bring the sector into regulation in the UK via amendments to the Financial Services and Markets Bill, and the City watchdog is poised to draw up more wide ranging rules around when it is finally brought within their remit, likely next year.
Regulatory run-ins
But Hammond and Copper have already had their own run-ins with the regulator. The firm failed to clear the FCA’s anti-money laundering tests in 2022 and decamped its trading team to Switzerland as a result.
While many would look back at the FCA’s crypto-caution as a positive given the carnage of the past 12 months, Hammond says it is indicative of a wider post-Brexit missed opportunity.
“The UK’s financial markets have prospered in the past when UK regulators have been agile and supportive of new products and new markets,” he says.
“And London, frankly, badly needs a new product and a new market culture at the moment. We need a story to tell post Brexit: what is the future of Britain’s financial services industry?
“I would like the answer to be [it is] the world’s preferred trading venue for the next generation of digitised asset trading.”
Those words might have seemed very much in line with his Treasury successors’ one year ago, but crypto enthusiasm has dimmed somewhat. Sunak and his City minister John Glen were forced to quietly can their much-mocked NFT, and the emphasis has since been on drawing up firmer guardrails.
“Politicians, I’m afraid, speaking as a former practitioner, are always very much influenced by short term factors,” Hammond says.
Brexit damage
Missed opportunities do not stop at crypto in Hammond’s eyes. The former chancellor has never minced his words on Brexit and had the whip withdrawn in 2019 for failing to fall in behind Boris Johnson’s Brexit bill.
The UK’s standing outside the EU has now knocked it from its previously unthreatened technology crown, he says, and is struggling to find a narrative to replace it.
“I’m confident that London is still there, in the game, and right up there with the pack. But we are running on fresh air.
“And since we left the European Union in 2021, we haven’t yet really articulated what the new narrative is.”
Any plans to articulate are unlikely to be forthcoming. The UK is heading towards a general election (“Probably in the late Autumn of 2024,” Hammond reckons) and long-gestation plans are not likely to be front of mind for Sunak and co.
The Labour party is mounting its own offensive in an effort to win over the country’s financial services sector, with Rachel Reeves making attempts to woo the Square Mile’s movers and shakers. But predictably, that too is not piquing Hammond interest.
For Hammond, the City needs a clarion call. Some say its listing reform, deregulation or capital markets tweaks. For the former chancellor, the UK needs to become the future of crypto.