Blockchain is still young and wide-reaching regulation risks unforeseen consequences. Of course, there is a need for regulatory certainty; but the government’s continued programme of research, engagement and facilitation of innovation in these circumstances is the best approach at this point in time.
The UK regulators tend to take a ‘wait-and see’ approach to novel challenges such as blockchain, minimising the risk of legislation that has a chilling effect on innovation and entrepreneurship.
There is a need for collaboration with industry participants and coordination among the various regulatory bodies responding to blockchain and cryptocurrency. Such collaboration and coordination will hopefully avoid a hodgepodge of confusing policies that would undermine certainty and hamper innovation.
Consumer Protections
Keep your ear to the ground if your UK business uses, accepts, deals in or is in any way involved in crypto assets. Regulators are concerned about the lack of consumer protections that apply to the crypto assets market. It is highly unlikely that nothing will be done to respond to this issue. As mentioned above, the Financial Conduct Authority (FCA) has already proposed a ban on the sale of derivatives and exchange-traded notes referencing types of crypto assets.
Fifth Money Laundering Directive
The Fifth Money Laundering Directive has introduced onerous requirements for crypto asset businesses. The FCA will be hawk-eyed in its role as supervisor and companies must be prepared.
Final point
The Internet is teaming with blockchain zealots preaching the gospel that “Blockchain is the answer, but what’s the question?” There is an extensive choice of blockchain uses, but blockchain is not suited to everything. For example, blockchain is unnecessary when there is no business network: having a business network is the mandatory test for a blockchain use case.
For all questions regarding the topics raised in this blog, please contact a member of our team of digital asset legal experts.