Adam Smith Institute: Market-Liberal Crypto Policy from London

The Adam Smith Institute is the UK’s premier market-liberal think tank — the intellectual home of the Thatcherite policy agenda that shaped British economic policy in the 1980s and that has maintained a consistent presence in UK economic policy debates since. Its name invokes the founder of modern economics and the case for free markets, and its policy output consistently applies classical liberal economics to contemporary questions. On crypto, that means one of the UK’s most consistently pro-innovation, anti-restriction voices in a regulatory environment that has frequently leaned toward caution.

The ASI’s positioning on crypto is not incidental to its broader mission. Financial liberalisation — the idea that competitive markets in financial services produce better outcomes than regulated monopolies — is a foundational commitment that predates crypto. The case for allowing crypto markets to develop with minimal regulatory interference follows from first principles that the ASI would apply to any financial innovation.

The FCA’s Approach: Too Restrictive

The ASI has been a persistent critic of the FCA’s crypto regulatory approach, and the criticism has been specific rather than reflexive. The FCA’s crypto marketing restrictions — introduced in 2023 and requiring all crypto promotions to UK consumers to be approved by an FCA-authorised firm — were criticised on both proportionality grounds (the compliance requirements imposed significant costs without clear consumer protection benefits) and competitive grounds (overseas crypto firms complying with the rules faced additional friction that reduced UK market access while UK-based firms could more easily obtain authorisation).

The FCA’s approach to the crypto asset firm registration process — which requires firms to demonstrate compliance with AML/CFT standards before operating in the UK — has produced a low registration rate that the ASI has documented and criticised. The majority of firms that applied for FCA registration have been either rejected or withdrawn their applications, leading to a situation where the legally operating UK crypto market is small relative to the UK’s overall financial market position. The ASI’s argument is that this outcome reflects the FCA’s risk-aversion rather than a genuine assessment of consumer protection requirements.

The criticism is not that AML compliance should be waived — the ASI accepts the basic AML framework as a legitimate regulatory requirement. It is that the FCA’s implementation has been disproportionately burdensome and has driven business to Singapore, Switzerland, and other jurisdictions without producing measurable consumer protection benefits.

The Digital Pound: Unnecessary and Potentially Harmful

The ASI’s opposition to a UK retail CBDC — the “digital pound” — mirrors Cato Institute arguments about the US retail CBDC but in the UK context. The ASI has argued consistently that the Bank of England has not made a compelling case for what problem a digital pound solves.

UK payment infrastructure is already fast and increasingly accessible. Faster Payments, the UK’s domestic instant payment system, processes most bank-to-bank transfers in seconds. Open Banking has created a competitive infrastructure for payment innovation. The private sector is developing digital payment solutions across the full spectrum of consumer and business use cases. In this context, the ASI asks what the digital pound adds that cannot be achieved through private sector innovation within an appropriate regulatory framework.

The financial stability concern — that a retail CBDC could accelerate bank deposit outflows during stress events — echoes the Mercatus analysis but is particularly salient in the UK context, where the retail banking system is concentrated among a small number of large institutions. The ASI has also raised the question of whether Bank of England retail CBDC operations would crowd out private payment innovation — a concern that regulators elsewhere have addressed through architectural choices (like the Bank of England’s commitment to an intermediated model where private firms handle the consumer interface) but that the ASI views as insufficiently resolved.

Post-Brexit Regulatory Opportunity

The ASI’s most distinctive contribution to the UK crypto debate is its consistent argument that Brexit creates a regulatory opportunity that UK policymakers are not fully exploiting. Post-Brexit, the UK is not required to implement MiCA — the EU’s comprehensive crypto regulation — and is free to develop its own framework.

The ASI’s argument is that the UK should use this freedom to develop a framework that is more permissive than MiCA in specific areas: lighter-touch requirements for smaller firms, more accommodating treatment of DeFi protocols, and a stablecoin framework that creates a genuine path to regulatory approval for well-structured products rather than the prohibition-by-complexity that characterises MiCA’s approach.

The alternative — which the ASI argues the current regulatory direction risks — is a UK framework that is roughly equivalent to MiCA in its burden but without MiCA’s benefit of a passport across a 450 million person single market. A UK-equivalent-to-MiCA framework gives firms neither the EU’s market access nor the UK’s historical advantage as a global financial hub; it offers the costs of European-style regulation without the benefits.

For ASI, the optimal outcome is a UK framework that is demonstrably more open to innovation than the EU, while maintaining the rule-of-law clarity and institutional quality that makes London a credible global financial centre. Whether UK regulatory policy is moving toward or away from this vision is a question the ASI has consistently pressed — and one that the UK crypto industry watches with considerable attention.