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In August this year, Chancellor of the Exchequer George Osborne announced the Treasury’s intention to investigate digital currencies as part of their plan to make Britain a “global center for financial innovation”. Many in the industry were skeptical whether this meant an actual willingness to interact with digital currencies or just an opportunity for soundbites. However, in November it still seemed to be a key issue on the agenda, as a ‘call for information’ has been issued for digital currencies, offering an opportunity to weigh the risks and benefits and potentially influence government policy.
Regulation of the technology itself is, of course, unwanted and futile – the defining characteristic of Bitcoin is that there is no central entity to control. Ultimately, however, some form of regulation is inevitable for many businesses offering digital currency services and would encourage the use and development of these technologies. Reducing uncertainty is key to improving the business environment, and the key to this will be some form of government intervention, even if only at the fringes.
Many different, often passionate, opinions have been heard on this topic and we recognize the importance of coming together to respond as a community and industry. We need to understand that from their point of view policy makers are taking a risk by engaging in this sector, and we have a responsibility to support them by presenting a coherent view of what is needed to support our sector. For this reason Elliptical worked closely with the UK Digital Currency Association to help craft their response, and our own opinion is based on this document. Our two key messages were:
- State intervention in the form of “mild” regulation of certain businesses with digital currency within the existing framework is urgently needed, in order to legitimize digital currencies, stimulate investment and ensure Great Britain’s position at the forefront of financial technology.
- Digital currencies are an emerging technology whose benefits are only beginning to be realized. Government intervention must recognize its future potential as well as its current impact.
The EU could eventually implement tailored regulations for digital currency business, e.g recently recommended by the European Banking Authority. In the meantime, the UK can get a head start by immediately bringing digital currency businesses such as exchanges and wallet services under the Money Laundering Regulation – with supervision provided by either FCA or HMRC. This would go some way to providing much-needed legitimacy to the sector, encouraging investors to back start-ups and encouraging banks to work with businesses.
The UK is well placed to take the lead in this new industry, thanks to its financial pedigree, robust regulatory regime and deep pool of fintech talent. But policymakers must be far-sighted and take urgent and constructive action if the UK is to take its rightful place as a global hub for digital currencies.
Elliptic’s full response to HMT’s request for information is available here.
Compliance of EMEA CBDCs
