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Blockchain still lacks a regulatory framework in the UK

Scott Carey | Jan. 31, 2017
What financial watchdogs need to do in 2017

Later on Jonathan Galea, assistant legal counsel at online gambling company NetEnt, helpfully took a step back too, adding that there needs to be a distinction between public and private blockchains. "When it comes to the blockchain, completely decentralised blockchains can't be regulated, so where the code has been written and issued to the general public. Private blockchains can be regulated, but we still need to make a distinction between the two," he said.

Current regulatory landscape
Many recognise that the UK's regulators tend to be more open minded when it comes to new technology in the financial services space. For example, an EY report into UK fintech from February 2016 asserted that "the UK has the strongest fintech policy environment, with the most supportive regulatory regime," as benchmarked against other leading fintech hubs.

"The strength of the UK policy environment is due to the supportiveness and accessibility of the Financial Conduct Authority (FCA), effective tax incentives and numerous government programmes designed to promote competition and innovation which indirectly support fintechs," the report concluded. These programmes include the FCA's regulatory sandbox, Project Innovate and the Bank of England's fintech accelerator.

The Bank of England even conducted a successful proof of concept (PoC) of distributed ledger technology with PwC last year. This approach would strongly suggest that the bank will be providing a favourable regulatory environment for anyone wanting to work with the technology, but only once it matures.

Following the PoC the bank's statement read: "While the technology is still relatively immature, it could provide benefits in the future, and also be complementary to existing systems by, for example, removing the single point of failure of a system, considerably increasing its resilience."

Open dialogue
Guido Branca is CEO of BaBB (Bank Account Based Blockchain), a fintech looking to provide access to banking services based on the blockchain. The Harvard graduate said that he chose the UK to set up his business, "because of the regulators." He said: "We found the Bank of England taking an open approach, so instead of turning people away they engage."

Experienced compliance officer for the financial services industry Richard Levin agreed, saying: "I know people don't like to talk to regulators but you should. Help the regulators understand this industry, help them understand what you want to do, have a dialogue with them, be forthright and try to do it the right way. They will be much more forgiving if you try to do things that way than hiding from them."

However he did add that these conversations are increasingly vital because, "right now the regulations are completely out of step with the technology."

 

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