Cryptocurrencies: The UK looks at preliminary steps towards regulation
Here in the UK, and globally, the emergence of crypto-currencies and other digital assets has created opportunities and risks. A growing social concern is that there exists a gap in the current financial markets legislation regarding new asset classes, and that this has left some consumer vulnerable to exploitation, which has in turn caused regulatory issues. Regulators have a mandate for consumer protection, but potentially require appropriate legislation to bring these new activities within their domain. Consequently, regulators are looking for political guidance on how to proceed when faced with the emergence of the nascent ‘crypro-asset management’ industry and many of the new firms servicing this new asset class are unsure or even unaware of their regulatory obligations.
Last month, a Treasury Committee published a report on the development of crypto-assets and blockchain technologies for its digital currencies inquiry, with input provided by the crypto industry and the large community of cryto-sceptics and agnostics.
In the UK there are two ways in which new FinTech propositions can become part of the regulatory ecosystem. The simplest option is by adapting existing regulations and statutes. A second possibility is to develop a new template specifically for the new innovation. It seems that there is a broad consensus forming in favour of the simpler approach. While the FCA has a track record of embracing innovation and supporting digital solutions, it seems that legislation is playing catch-up with digital disruption and some technological developments are outside of the regulator’s current comfort zone. It will take political guidance to change this to ensure optimal social solutions.
The reports main conclusions were:
Regulation is needed to protect consumers;
There exist multiple issues with crypto-assets. with minimal consumer protection, and by-design anonymity facilitating money laundering;
In current uses blockchains are slow, costly and energy-intensive, but this may change; and
Current ambiguity in regulatory status is sub-optimal and increased regulatory scrutiny is inevitable.
Here at RiskSave, we see increased regulation in this area as a positive. Increased scrutiny and education of market participants should lead to improved customer outcomes and potentially enable sustainable growth in the industry.