John Wilson, Managing Director UK and Ireland at Avaloq, has commented on the need for a regulatory regime that enables digital asset innovation, in the context of the FCA’s consultation on strengthening financial promotion rules for cryptoassets.
Wilson writes that the FCA is consulting on an approach to regulation that would see qualifying cryptoassets categorised as ‘Restricted Mass Market Investments’, available only to sophisticated or HNW investors.
“We believe the regulator is right to protect investors. Digital assets and blockchain technology can act as a positive, democratising force in wealth management and regulation should facilitate innovation to help expand access to wealth management services.
“Conversations about crypto in the wealth management sector started a few years ago, but in the last six months there has been a rapid acceleration in interest, with wealth managers asking us about NFTs, tokenisation and how they can offer digital assets to their clients.
“Our own research reveals that a quarter (25 per cent) of UK investors view crypto offerings as a must-have from their financial services provider and a further 25 per cent would switch to a provider that offers crypto. In addition, three in 10 (30 per cent) UK investors cite the ability to include cryptocurrencies in their portfolio as the digital investing capability they are most excited about.”
Wilson concludes that crypto is an important driver of innovation in wealth management and having a digital asset offering – from trading to custodial services – will facilitate revenue growth and attract new categories of clients.
He writes: “We have identified three key use cases where blockchain technology can help democratise access to wealth management.
“First, the digitalisation of assets creates a new world of investment products and methods of wealth accumulation. Second, tokenisation enables investors to gain exposure to non-bankable assets, such as fine art and rare collectibles, by buying fractions of them without the traditional challenges around illiquidity and high minimum investment values. And finally, decentralised finance through the use of smart contracts allows market participants to interact directly without the need for an intermediary.
“It’s therefore crucial that regulation lets investors safely access this emerging asset class and paves the way for further innovation in digital assets and blockchain technology.”