How British Financial Regulator Creates A Foundation For UK Cryptocurrency Adoption

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The foundations are slowly being laid for further cryptocurrency development and adoption in the UK.

Traditional financial institutions and big banks in the UK haven’t been overly supportive of cryptocurrencies over the years, but change could be on the horizon.

2018 has seen a big move for positive regulatory action towards cryptocurrencies around the world and England’s Financial Conduct Authority (FCA) has embraced this change as well.

In March the FCA announced that it had launched a cryptocurrency task force in association with the Bank of England in order to explore ways to regulate and foster the expanding cryptocurrency sector.

They also launched a global fintech sandbox, which intends to foster and fast-track fintech development by bringing tech companies together from around the world.

The FCA has since confirmed that it will deliver an analytical report on the state of cryptocurrencies later this year and has already delivered a guideline document for financial institutions looking to launch cryptocurrency derivative offerings.

As Cointelegraph reported last month, there has long been an apathetic attitude towards Bitcoin and other cryptocurrencies from the likes of the Bank of England and other mainstream financial institutions.

Mark Carney, Bank of England governor, all but condemned Bitcoin in an address in February at London’s Regent University. The only positive take away were remarks towards the underlying Blockchain technology.

MIT Professor of Economics John van Reenen told Cointelegraph that it seemed unlikely that these financial giants would change their tune towards cryptocurrencies, but these latest moves by the British financial regulator suggest that may not be true.

A race for cryptocurrency regulation

Some analysts in the UK believe the FCA is making positive steps that could make England an attractive base for tech companies and Blockchain startups.

Jacob Ghanty, a partner at UK law firm Kemp Little, told that the FCA is trying to get ahead of the curve, as the world at large warms to the idea of cryptocurrencies:

“At a high level, there is pressure on the UK authorities to develop a comprehensive strategy towards crypto, as sooner or later the EU will develop its own approach meaning there will need to be compelling reasons for crypto firms to locate in the UK.”

A balancing act – regulations to promote growth

A glaring concern around the world has been the volatility of cryptocurrency markets, which puts investors at risk. However, that hasn’t changed the fact that there has been considerable interest in the sector.

To that end, the FCA is walking down the trail that was blazed by American exchange operators late last year.

The Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE) were the first to launch Bitcoin Futures contracts, which were initially met with positive sentiments and a bump in the price of Bitcoin. A week later, Bitcoin reached its zenith at $20,000 and soon began a humbling correction.

None of this would have been possible without the support from America’s Commodities Futures Trading Commission (CFTC), which allowed the likes of the CME and CBOE to launch their cryptocurrency futures options.

Furthermore the CFTC and the Securities Exchange Commission (SEC) promised to create regulatory guidelines that would contribute to the growth of ICOs, cryptocurrency and Blockchain technology in a hearing in February.

Guidelines for cryptocurrency trading options

In a similar vein, the FCA has noted the appetite for financial offerings like derivatives for the cryptocurrency markets in the UK. They’ve reacted by providing a clear-cut message to companies launching these type of financial instruments.

While there are no regulations for cryptocurrencies in the UK at present, the FCA has made it clear that firms looking to offer futures, contracts for differences and cryptocurrencies options must adhere to existing regulations set out by the British financial regulator.

As per the statement released on the FCA website in April, any of these instruments must comply to existing regulatory guidelines, with three specific references made:

  • cryptocurrency futures – a derivative contract in which each party agrees to exchange cryptocurrency at a future date and at a price agreed by both parties
  • cryptocurrency contracts for differences (CFDs) – a cash-settled derivative contract in which the parties to the contract seek to secure a profit or avoid a loss by agreeing to exchange the difference in price between the value of the cryptocurrency CFD contract at its outset and at its termination
  • cryptocurrency options – a contract which grants the beneficiary the right to acquire or dispose of cryptocurrencies

Britain warming up to Blockchain

It’s hard to predict what to expect from the pending cryptocurrency review. If the prevailing rhetoric from British banks and financial institutions is anything to go by, the FCA could produce a report that continues to keep cryptocurrencies at an arms length.

They’ve made no qualms about the significant interest in the applications of Blockchain technology as a means of verifying transactions in traditional financial systems, but whether they will produce an optimistic outlook on the likes of Bitcoin and its altcoin brethren remains to be seen.

British Conservative Member of Parliament Matt Hancock delivered a speech at the London Blockchain Conference on April 19, predicting the ‘monumental impact’ Blockchain technology will have in the coming years.

He highlighted how the UK government has already donated 10 mln pounds to various Blockchain projects ranging from energy to voting systems.

Encouragingly, Hancock also made mention of the Cryptoassests Taskforce, which he claims ‘will set out an approach that balances the need to encourage innovation and growth, whilst managing the risks’.

Nigel Green, chief executive and founder of financial consultancy deVere Group, believes:

“First, because of the sheer numbers of people it will directly affect.  There’s been incredible growth of the cryptocurrency market in recent years. This growth can be expected to soar further and quicker over the next decade as more and more investors pile into the likes of Bitcoin, Ethereum, Ripple, Litecoin and Dash, and as adoption by businesses and organisations further increases.

“Second, the FCA is one of the world’s most influential and respected financial regulators.  As such, it can be expected to help shape and define the thinking and policies of regulators globally, the majority of which in the major economies are now also carefully looking at the crypto space.”

Should the FCA follow in the footsteps of the SEC and CFTC, cryptocurrencies could see a surge in support in the UK and Europe once the report is published. This will be a long awaited boost for the market which has suffered in the first quarter of 2018.

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Author: Gareth Jenkinson

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