21 August 2016

Financial Times: FCA considers approving blockchain businesses

UK consumers are one step closer to using products underpinned by blockchain technology after the financial watchdog said it was considering approving a “small but significant number of firms” using the process behind bitcoin, the cryptocurrency.

The UK’s Financial Conduct Authority, considered by the fintech industry as among the most forward-thinking regulators in the world, said that several groups in its preapproval stage are developing consumer-facing and compliance products that use blockchain technology.

Blockchain’s attraction for banks is it provides a unique shared database across multiple locations as an immutable public ledger of transactions, offering the potential to cut costs and speed up areas such as settlement of securities trades.

However, some regulators have been wary of the technology, warning of its potential vulnerability to fraud or to undermining financial stability.

“We do think [blockchain] has got some potentially interesting applications and we are talking to firms thinking about how to apply that to financial services and how it could benefit consumers or indeed make the business of compliance easier,” said Chris Woolard, the FCA’s director of strategy and competition, in an interview with the Financial Times. “There may be areas where we might want to encourage it a bit.”

The companies in question are being scrutinised as part of the FCA’s so-called Project Innovate. This offers advice to companies — either start-ups or incumbents — trying to develop cutting-edge products on what regulations they need to adhere to. In its first year, the project assessed 177 companies and approved 40 of them.

It includes a so-called regulatory sandbox, where companies can test products with temporary FCA authorisation.

Mr Woolard said that a “small but significant number” developing blockchain technology are part of the project, adding the FCA would announce more details in the coming months.

If a company wants to start lending or undertake any kind of payment services in the UK it would need FCA approval. If the FCA did give its imprimatur the companies would be among the first in the world to gain regulatory approval. [...]

Full article on Financial Times (subscription required)

© Financial Times