Financial regulators in the UK have a well earned reputation for an open and progressive approach to cutting edge technology, with the Financial Conduct Authority (FCA) operating Project Innovate and a regulatory sandbox, as well as the Bank of England's fintech accelerator.
However, there is still no firm regulatory framework in place for the potentially disruptive blockchain technology to be used by financial services firms. So what needs to change?
Blockchain as a term grew to prominence as the distributed ledger technology underpinning of the crypto currency Bitcoin. It is essentially an electronic ledger of records which are organised into data batches, called blocks, which automatically reference one another, forming an unbroken chain which theoretically cannot be tampered with as it is 'distributed' and does not reside anywhere central.
The reason financial organisations are so interested in the technology is because of the possibility of having an irrefutable record of transactions, and effectively eliminating the possibility of fraud.
Speaking at London Blockchain Week on Tuesday, three lawyers and a fintech founder spoke about where they see the UK's regulatory framework in regards to the distributed ledger blockchain technology, and what needs to happen for use cases to go mainstream.
John Salmon, a partner at law firm Hogan Lovells said that there tends to be two camps when it comes to regulating blockchain, and that they resemble the way regulators spoke about the early internet during the dotcom boom. He said: "Either it was the Wild West and it cannot and shouldn't be regulated, or there is a camp saying that this had to abide by existing laws."
He gave the example of music pirating sites like Napster as an early indicator that online businesses need to abide by the same rules as incumbents, and that this should be taken into account by regulators looking at a technology as potentially disruptive as blockchain. "The lessons to be learned are that we need to apply existing laws and regulations, and we absolutely have to think about putting in new ones," he said.
On that note, Mark Carney - the governor of the Bank of England - made a speech at the Deutsche Bundesbank G20 conference this week where he spoke about some of the considerations the Bank makes when deciding whether something like blockchain should be brought into its regulatory perimeter.
He said: "Just because something is new doesn't necessarily mean it should be treated differently. Similarly, just because it is outside the regulatory perimeter doesn't necessarily mean it needs to be brought inside." In short: we are no closer to a clear regulatory framework for blockchain in the UK.
Sign up for CIO Asia eNewsletters.