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Key legal and regulatory challenges with distributed ledger technology

Sue McLean | June 27, 2016
Interest in blockchain is growing among banks and other organisations, now regulators are assessing the technology

As regularly reported in ComputerworldUK and Techworld, an increasing number of companies are exploring and investing in distributed ledger technology. 

blockchain
© iStock/alengo

Governments and international bodies are also discussing the possible implications of distributed ledgers on business, governments and the economy. 

This transformative technology raises significant questions for policy makers, regulators and lawmakers.

Indeed, during the last 18 months, many national and international bodies (some examples are set out below) have been closely analysing and monitoring distributed ledger developments. 

For now, most appear cautiously optimistic about its future. This isn't surprising - despite its challenges, distributed ledger technology could actually help improve regulatory compliance, and compliance tracking and reporting.

However, despite calls for regulation from some parties who believe that the current legal and regulatory uncertainty is unhelpful, it's clear that most authorities are taking a "wait and see" approach.  This seems prudent - until the technology has been properly tested, any regulation of the technology could be premature and hamper its development. 

  • In February 2015, the Bank of England acknowledged the promise of decentralised ledger technologies and has since created a distributed ledgers team.
  • In January 2016, the IMF issued a report considering the benefits and risks of distributed ledgers and stated that achieving a balanced regulatory framework that guards against risks, without suffocating innovation, is a challenge that will require extensive international cooperation.
  • In February 2016, the FSB, which sets global standards for the G20 countries, announced that it will be assessing fintech innovations including distributed ledgers to ensure that the regulatory framework is able to manage systemic risks without stifling innovation.
  • In February 2016, Christopher Woolard, the FCA's Director of Strategy and Competition, said that the FCA was monitoring the development of the technology, but wouldn't take a stance until its application is clearerHe also commented that regulatory and consumer issues will need to be examined as the technology evolves and the FCA intends to work with firms developing distributed ledgers solutions via Project Innovate to ensure consumer protections are factored in during the development phase of the technology. The regulator is also examining ways that distributed ledgers could assist regulatory compliance.
  • In February 2016, the European Parliament's Committee on Economic and Monetary Affairs called for a proportionate approach to be taken to distributed ledgers until they become systemically relevant. It also proposed creating a distributed ledger task force under the leadership of the European Commission to provide the necessary technical and regulatory support at both EU and Member State level. In terms of existing law, the Committee stated that it believed key existing EU legislation would apply irrespective of technology, but recommended a review of EU payments legislation.
  • In January 2016, the UK Government's Chief Scientific Officer, Sir Mark Walport, issued a report, "Distributed Ledger Technology: beyond block chain," recommending that the UK Government considers how to put in place a regulatory framework for distributed ledger technology which evolves with the development of the technology, using technical code as well as legal code.

 

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