The UK government launched its first FinTech Sector Strategy in March 2018. One plank of its strategy was to create a Cryptoassets Task Force formed of representatives of the Treasury, the Bank of England, and the Financial Conduct Authority.
The Task Force is intended to help the UK be at the forefront of harnessing the potential benefits of the new technology, while guarding against potential risks. In particular, the Task Force is expected to assess the need for any further regulation of cryptoassets.
The Task Force was expected to report back in the Summer 2018. However, from a recent announcement, it is clear that the Task Force only met for the first time on 21 May 2018.
On the positive side, the Task Force has now agreed its objectives, which include exploring the impact of cryptoassets, the potential benefits and challenges of the application of distributed ledger technology in financial services, and assessing what, if any, regulation is required in response. (But, then again, these broad objectives were identified back in March.)
The Task Force has also confirmed that it will consider existing analysis by the government and regulators. It will also seek new views from trade bodies, academics, consumer groups and investor representatives. In terms of more definitive actions, it has announced that it will host a roundtable in July and publish a report in Q3 2018.
This progress, even if sluggish, will be welcomed by the UK blockchain and cryptocurrency sector. Many in the sector are keen to see more clarity from the regulator as to the approach to cryptoassets, ICOs and token sales, pointing to what they see as helpful guidance provided by regulators in rival blockchain hubs (e.g., FINMA in Switzerland).
In the meantime, companies will need to remain careful that they are staying on the right side of the law. It was recently reported that the FCA was investigating the activities of 24 unregulated businesses involved in cryptocurrencies to determine whether they might “be carrying on regulated activities that require FCA authorisation”.
In parallel with the Task Force’s developments, we are seeing a variety of activity at the UK government, parliamentary and regulatory level. (It’s clear to me from discussions that I have had with certain government representatives that the government is keenly aware that it has lost some momentum on its blockchain strategy since it published its world-leading Walport report on blockchain back in January 2016 and they are now trying to play catch-up.)
- An all party parliamentary groups on blockchain (APPG Blockchain) was launched in January 2018 and has a two year programme focused on ensuring that UK industry and society benefits from the full potential of blockchain and DLT.
- In February 2018, the UK Treasury Committee launched an inquiry into digital currencies and distributed ledger technology. The inquiry will cover the role of digital currencies in the UK, including the opportunities and risks that digital currencies may bring to consumers, businesses, and the UK government. It will examine the potential impact of DLT on financial institutions, including the central bank, and financial infrastructure. It will also scrutinise the regulatory response to digital currencies from the government, the FCA, and the Bank of England, and how regulation could be balanced to provide adequate protection for consumers and businesses without stifling innovation. The inquiry has been taking both written and oral evidence. which makes for interesting reading.
- In March 2018, the Bank of England’s Financial Policy Committee assessed digital currencies and concludedthat while the underlying technology has potential, it did not believe that they currently posed a risk to monetary or financial stability in the UK.
- In the FCA’s Business Plan for 2018/2019 issued in April 2018, blockchain and cryptocurrency were flagged as an area of focus and the regulator made reference to its involvement in both the Task Force and the Treasury Committee inquiry.
- This interest was also emphasized in a speech given by Mary Starks, Director of Competition at the FCA in April 2018 on “Blockchain: considering the risks to consumers and competition“. Starks noted that there has been a shift from cryptocurrencies as a medium for exchange to being seen primarily as an asset class, which has a range of public policy implications. The FCA would work with its Task Force members to identify whether further regulatory action is required. Regarding blockchain more generally, Starks was optimistic about blockchain’s promise to improve financial services markets. However, she also made clear that the regulator is aware of the perils. The FCA is mindful that it needs to understand the technology, its strengths and vulnerabilities, and its implications for competition, much better before the regulator is comfortable to entrust it with significant swathes of the UK’s financial infrastructure
- On May 23, 2018, Margot James (Minister for Digital at DCMS) keynoted a session to kick-off the next practical steps required to take forward the recommendations set out in Lord Holmes’ report published in November 2017, Distributed Ledger Technologies for Public Good. These activities will involve the creation of various working groups to look at the application of DLT.