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UK Government to Fund Research in Digital Currencies and Explore Regulation

Op-ed - UK Government to Fund Research in Digital Currencies and Explore Regulation

UK Government Funds Research in Digital Fintech and Promotes Firm Regulations

In November, the U.K. government launched a call for information on digital currencies, with a focus on their function as a payment method rather than as a speculative investment.

After receiving more than 120 responses, the government released a Treasury document titled “Digital Currencies: Response to the Call for Information,” which summarizes the submissions received and outlines the government’s views and proposed next steps:

  • The government intends to apply anti-money laundering regulation to digital currency exchanges in the United Kingdom, to support innovation and prevent criminal use. The government will formally consult on the proposed regulatory approach early in the next Parliament.
  • The government will work with BSI (British Standards Institution) and the digital currency industry to develop voluntary standards for consumer protection.
  • The government is launching a new research initiative that will bring together the Research Councils, Alan Turing Institute and Digital Catapult with industry in order to address the research opportunities and challenges for digital currency technology, and will increase research funding in this area by £10 million (U.S. $14.6 million) to support this.

The Digital Catapult is a national center whose mission is to rapidly accelerate the United Kingdom’s best digital ideas to market to create new products, services, jobs and value for the U.K. economy. Their focus is on data and metadata – on the data value chain.

The Alan Turing Institute will promote the development and use of advanced mathematics, computer science, algorithms and big data for human benefit. The Institute will encompass a wide range of scientific disciplines and be relevant to a wide range of business sectors.

Allocating the grant to these organizations indicates that the U.K. government is interested in supporting and understanding the underlying technology – the blockchain – and understands the potential benefits it could bring to society.

The first two points indicate that, similar to progressive jurisdictions such as the Isle of Man, the U.K. government intends to offer a friendly and agile regulatory environment to digital fintech firms while providing strong consumer protection and strictly applying money-laundering regulations. This approach, agile but firm, suggests that cryptocurrencies are poised to be integrated with the regulated framework of mainstream fintech.

The Treasury document recognizes that, in addition to reducing the costs involved in moving money around the economy, digital currencies can speed up transaction processing times, the cost and time advantages of digital currencies being most notable in the context of cross-border transactions.

While digital currencies offer greater privacy in some respects, they also create greater transparency, because all transactions are published on the public blockchain. This consideration shows that, similar to other governments, the United Kingdom is now persuaded that digital fintech based on cryptocurrencies can provide more – not less – transparency and control.

Elliptic, a secure Bitcoin vault based in London, stated that the U.K. government action plan represents encouraging progress in several key areas: anti-money laundering (AML), consumer protection and technical standardization.

“Prioritizing AML will bring much-needed legitimacy and clarity to the industry and hopefully encourage banks to engage more with digital currency businesses,” reads Elliptic’s statement.

“Furthermore, allowing the industry to develop its own consumer protection and technical standards will promote collaboration and innovation much more efficiently than top-down regulation. This response is important for cryptocurrency companies in the U.K. because it demonstrates a pragmatic, collaborative and priority-driven approach to regulation,” the statement reads. “The Treasury’s willingness to work alongside entrepreneurs to promote financial innovation while working tirelessly to protect consumers is a main reason the U.K. holds its place at the forefront of fintech innovation globally.”