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UK FCA Remains Blockchain Bullish with Establishment of International Regulatory Network

The Financial Conduct Authority (FCA) of the United Kingdom has announced the establishment of a collaborative entity, the Global Financial Innovation Network (GFIN).

Regulatory network

The newly-formed GFIN is a result of the FCA’s ongoing effort to create a global sandbox, a proposal that was announced in February. Currently, 11 collaborators are involved in the GFIN, comprised of international financial regulators and organizations such as the United States Bureau of Consumer Financial Protection, Ontario Securities Commission and the Monetary Authority of Singapore.

As written in the press release, the purpose of the network is to generate a reinvigorated concept of the ‘sandbox’, opening up an unprecedented global knowledge-sharing sandbox.

Christopher Woolard, FCA Executive Director of Strategy and Competition said, “The establishment of the GFIN can help share the experiences and knowledge from across different markets, while also providing a platform for innovative firms wishing to scale their propositions via testing in multiple countries.”

Feedback

Prior to the project update, the FCA had received 50 responses to the February paper that were on board for a collaborative regulatory effort. There were four key themes gleaned from the feedback, providing some precedent for how the GFIN should proceed.

Firstly, respondents were in favor of a regulatory safe-zone where regulators could work together to overcome common challenges, as well as addressing varying policy queries across multiple jurisdictions. This is accompanied by a new sense of efficiency, allowing for ideas to hit new international markets in a speedier fashion.

Furthermore, the feedback indicated that it was important for the new alliance to be transparent and fair, providing an equal field for those who desire to conduct cross-border tests.

Finally, disruptive new technologies with cross-border application are going pose challenges, technologies such as Artificial Intelligence (AI) and Distributed Ledger technology (DLT) aka blockchain, will come under the watchful eye of the GFIN.

To nurture these technologies, the alliance is to improve regulations of securities and initial coin offerings (ICOs) as well as address concerns with know your customer (KYC) and data protection, among others.

Primary objectives

In addition to the guidance offered by the feedback, the GFIN has set out three primary functions. To act as a network of regulators that shares innovation knowledge and experiences, establish an open and constant dialogue for joint policy work, and create an environment for firms to pilot cross-border solutions.

The United Kingdom has been somewhat a pioneer in the blockchain regulation space, with the Bank of England making significant strides having recently completed a DLT Proof-of-Concept. The UK is being touted as a nation with the capacity to lead the blockchain industry, which was a conclusion of a 960-page analysis from DAG Global, Deep Knowledge Analytics and the Big Innovation Center.

 

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40% of UK’s Latest Regulatory Sandbox Companies Blockchain, Crypto Related

Out of the 29 firms released by the UK Financial Conduct Authority (FCA) this week to the fourth cohort of the regulatory sandbox, ten are blockchain and crypto asset firms, according to the EconoTimes.

The FCA’s regulatory sandbox was created so that prospective companies would be able to test innovations and services in a live, protected, business market. The current round is the fourth since the project was announced in 2016.

As this latest round illustrates, 40% of the fourth round companies accepted are distributed ledger technology (DLT) or blockchain-based startups. Also, the regulator has accepted a small number of crypto-assets related firms as the FCA suggested that they are “keen to explore whether, in a controlled environment, consumer benefits can be delivered while effectively managing the associated risks.”

Christopher Woolward, executive director of Strategy and Competition at the FCA, explained further why it saw fit to include crypto-assets firms in this year’s fourth round:

“…we can see significant use of distributed ledger technology (DLT), some experimentation with crypto assets which will help inform our policy work and propositions aimed at helping lower-income consumers.”

The DLT and crypto assets-focused startups selected for the fourth cohort include BlockEX, Capexmove, Etherisc, Fineqia, Fractal, Globacap, Natwest, Token Market, Tokencard, Universal Tokens, World Reserve Trust, 20|30.

Due to the enormous growth in interest in new crypto assets like Bitcoin, the UK government created a Cryptoassets Taskforce earlier this year, consisting of the Treasury, Bank of England and Financial Conduct Authority.

The FCA does not regulate cryptocurrency exchanges, brokers or businesses, which gives them a gray area status and some freedoms. However, it has been pushed by the British Cryptocurrency Trade Association, the UK’s first self-regulatory blockchain industry trade body, to begin regulating the industry.

The United Kingdom was ranked fourth out of 48 other “crypto-friendly” nations, according to a study made by Blockshow Europe this year in which the UK had been praised for its “importance as a European hub for cryptocurrencies”.

 

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UK ‘Cryptoassets Task Force’ Begins on Positive Note

The UK government’s ‘Cryptoassets Task Force’ met for the first time on 21 May as part of the country’s plan to regulate the cryptocurrency and blockchain space, reported Crowdfund Insider.

One of the functions of the UK government’s task force will be to examine the risks of blockchain technology and mitigate these while examining the benefits of ledger technology in financial services. The Cryptoassets Task Force, consisting of the UK Treasury and the Financial Conduct Authority (FCA) has been set up for this purpose and is expected to report back in the summer with its findings in a roundtable scheduled for July, according to Bitcoin News.

The previously announced group involves the participation of the FCA, Bank of England (BoE), HM Treasury and other senior government officials. Some of the named participants include Katharine Braddick, director general of financial services at HM Treasury, Andrew Bailey, chief executive of the FCA, and Dave Ramsden, deputy governor of the BoE.

Bailey commented on the cryptocurrency status quo in the country saying that he was looking forward to working with both the BoE and the UK Treasury in order to develop policy.

Ramsden started on a positive note focussing on the what he saw as the potential benefits to the financial system on the UK economy:

“This task force will enable us to work closely with the Treasury and the FCA to explore how the opportunities posed by these technologies can be realized, while also tackling the risks arising from crypto assets.”

The task force’s analysis will not be limited to the central bank and regulatory bodies, but will welcome contributions from trade bodies, consumer groups and investors, in order to obtain a broad view of opinion from both government and public institutions.

The UK is known as a driving force in blockchain research and the spread of solutions is being utilized by numerous companies, as the country becomes one of the world’s most significant and dynamic fintech hubs. The government is keen to see further development of non-traditional innovation in the light of this recent progress.

BoE governor Mark Carney has moved over time from a position of claiming that cryptocurrency had “pretty much failed” as a form of money, to recent indications that he was not against innovation provided by cryptocurrencies, stating that regulation could potentially “serve the public better”.

British Conservative Member of Parliament (MP) Matt Hancock delivered a speech to the Law Society last month commenting that blockchain technology would have a “monumental impact” on people’s lives in the future.

 

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British Cryptocurrency Association CryptoUK pushing UK Government to Regulate the Industry

British cryptocurrency trade association CryptoUK is urging MPs and the UK Treasury to regulate the industry in the country.

The self-regulatory body made up of eight members has been approaching influential MPs, seeking support for its proposals to have the market regulated by the United Kingdom’s Financial Conduct Authority (FCA).

Earlier Developments
As previously reported by BitcoinNews, the FCA  is taking cryptocurrencies into serious consideration for future discussions, as outlined in their 2018/19 Business Plan; MPs, the FCA and the UK Treasury Committee will be examining the potentially disruptive impact of blockchain and cryptocurrencies on financial institutions and financial infrastructure.

That said, they’ll also be inquiring into the future benefits of the technology, with UK MP Matt Hancock echoing positive sentiments toward the sector. At the London Blockchain Conference in mid-April, a point noting the UK Government’s Digital Strategy, is revealing of a real capacity to which the UK could become “the best place in the world to start and grow a digital business and to trial new technologies like blockchain”.

CryptoUK Advances Discussions
Chair of CryptoUK and UK managing director at trading platform eToro, Iqbal Gandham said:

“Introducing a requirement for the FCA to regulate the ‘on-off’ ramps between crypto and fiat currencies is well within the remit of HM Treasury. Based on our analysis, this could be achieved relatively easily, without the need for primary legislation, and would have a huge impact, both in reducing consumer risk and improving industry standards.”

The group believes that regulation should give focus to exchanges, brokers and trading platforms instead of the actual cryptocurrencies themselves; furthermore, they propose that the HM Treasury should draw up new permissions for FCA to control cryptocurrency investment.

CryptoUK is also proposing that FCA should be responsible for licensing approved exchanges and enforce new rules including anti-money laundering practices, examination of investors and operational standards.

Blockchain Technology “Pixie Dust” and “Magic Wands”
Contrary to the positive stories emerging from the United Kingdom in recent weeks, think tank director of the Center for Evidence-Based Management, Martin Walker, spoke at a Treasury Committee hearing on blockchain in the financial system, claiming:

“All that it takes to make a credible idea into a fad is people just switch off their brains and stop thinking. Over 20 years in and around the banking industry — blockchain is a fad, but I have seen many fads in my career. If 10 percent of what I’ve heard in my career had come true, we would have these amazing banks that run for £1 a week.”

What Walker fails to address is the far-reaching impacts the technology has beyond that of its predominant financial functions, and that the UK is taking proactive steps to fund and develop blockchain startups.

 

 

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UK Crypto Plan Under Review

The UK’s Financial Conduct Authority (FCA) has announced that it plans to release the results of its task force on cryptocurrency in the summer.

One of the functions of the UK government’s task force is to examine the risks of blockchain technology and mitigate these while examining the benefits of distributed ledger technology in financial services. The Crypto Assets Task  Force, consisting of the UK Treasury and the FCA, has been set up for this purpose.

Chancellor Hammond’s comments at a recent Fintech conference in Australia demonstrate that the UK would open its doors to innovators and inventors, suggesting the task force as a first step towards automating financial compliance in the UK. In the context of the fintech sector, he saw it being able to “grow and flourish” in a regulatory climate that has broadly been supportive of blockchain technology and cryptocurrencies over the years.

The FCA suggests that cryptocurrencies are “an area of increasing interest for markets and regulators globally”. The discussion paper to be published this year should clarify Bank of England and Treasury views on which direction to take regarding cryptocurrency regulation.

On Friday, the authority clarified that firms offering cryptocurrency services would need to comply with new guidelines set or be prosecuted under the law. Treasury committee chair, Nicky Morgan, also made it clear that its own ongoing enquiry into cryptocurrencies would examine some of the risks and threats posed to UK consumers, as well as businesses and governments, by digital currencies.

Morgan pointed out, on a more positive note, that the committee would “examine the potential benefits of cryptocurrencies and the technology underpinning them, how they can create innovative opportunities”.

Committee member Alison McGovern suggested that the inquiry would help lawmakers and politicians educate themselves on cryptocurrencies before enforcing legislation on how the industry should conduct its business. She suggested that the UK government needed a clearer understanding of cryptocurrencies and to think more clearly about “the policy environment for blockchain technology”.

 

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UK Financial Conduct Authority Warns Firms About Crypto Derivatives

The UK Financial Conduct Authority (FCA) has issued a warning to firms that deal with cryptocurrency derivatives, as they likely require authorization from the agency to do business.

Posted Friday on the official FCA website, the statement advised that cryptocurrency derivatives have the qualities necessary to be considered tradeable assets. As the statement reads, this means that firms involved with regulated activities using cryptocurrency derivatives are subject to FCA guidelines, as well as any relevant provisions indirectly applicable to European Union regulations.

Despite the FCA declining to acknowledge cryptocurrencies as either currencies or commodities in regards to regulation, the statement notes that it is ”likely” that firms offering cryptocurrency derivatives require authorization to do so.

This would potentially require companies holding initial coin offerings (ICOs) to comply with the FCA guidelines, although the statement noted that this would depend on the nature of the token offered.

Other areas outlined that would fall within the FCA’s regulatory parameters include cryptocurrency futures, cryptocurrency contracts for differences (CFDs) and cryptocurrency options.

The final warning of the statement precautioned firms that neglecting to authorize activities under the FCA’s regulation is a criminal offense. The statement finished, ”Authorized firms offering these products without the appropriate permission may be subject to enforcement action.”.

The FCA on the industry

In 2016, the FCA said that there were no plans in place to regulate the blockchain industry for the time being, as it needed what it described as space to develop.

However, the agency has been outspoken on its unfavorable view towards cryptocurrencies and ICOs. Chief executive of the FCA Andrew Bailey said in December 2017 that Bitcoin investors must be prepared to ” lose all your money”. He compared cryptocurrency investments as similar to gambling.

December 2017 also saw the FCA announce a further study into ICOs, scheduled to determine if there was a need for further regulatory action depending on the applicability of UK laws to the investment model of ICOs.

 

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Weekly Bitcoin and Blockchain News Roundup: Europe, 12 to 18 March 2018

Europe

13 March 2018

The European Central Bank (ECB) executive board member Benoit Coeure and Bank of International Settlements Markets Committee chair Jacqueline Loh wrote that “Bitcoin has put the spotlight on an old failing of our current system: cross-border retail payments.”, urging current banking and financial systems to improve as the best way to “rise to the Bitcoin challenge”.

14 March 2018

Bloomberg reported that Allianz Global Investors, Europe’s biggest insurer’s investment arm, has dismissed Bitcoin as worthless. It does concede that blockchain technology harbours massive potential for investors.

 

Kranj, Slovenia

13 March 2018

The Slovenian city of Kranj have built what it claims to be the “first blockchain monument” in the world. Placed at a roundabout in the city center, it features the familiar Bitcoin logo which can be viewed overhead.

 

The Hague, Netherlands

13 March 2018

Dutch finance minister Wopke Hoekstra called upon the parliament to warn that current supervision and regulatory frameworks in the Netherlands were still insufficiently equipped. The minister revealed that he would actively work in a European context, but that the approach would require a European and international approach.

 

London, UK

14 March 2018

Coinbase UK received an e-money license from the UK Financial Conduct Authority (FCA), effective from 21 March 2018. Essentially, Coinbase customers are now allowed to store their e-money on Coinbase UK accounts, enabling more payment options for them in the UK. The license, however, would not cover cryptocurrency activities.

 

Paris, France

15 March 2018

French regulators Autorité des marchés financiers (AMF) published a blacklist of 15 crypto-related France-based companies soliciting investments from the public. These companies contravened the new “Sapin II” Law No. 2016-1691 of 9 December 2016 on “transparency, the fight against corruption and the modernization of economic life”.

16 March 2018

The same AMF will be working together with its government as France aims to create its first guidelines through which enterprises could legally raise venture capital through so-called initial coin offerings (ICOs). Among some of the proposals include a visa issued to companies wishing to conduct ICOs, giving them official government approval.

 

Vilnius, Lithuania

16 March 2018

The Bank of Lithuania put out a call for tender for a proposal for software developers from around the world to assist it with developing its LBChain blockchain platform. It aims to help businesses to trial and implement sophisticated financial tech innovations.

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