Where Are They Now?: The United Kingdom’s Slow, yet Proactive Approach
During this series covering the regulation of blockchain and cryptocurrencies, BTCManager has taken a look at nations who have all taken relatively unique approaches in their attempt to accommodate the technology. While there may be some similarities, the pieces have focused on events that make them stand-out amongst the rest.
This installment is no different as the United Kingdom has had a particularly interesting relationship with blockchain technologies and cryptocurrencies, and is touted as one of the world’s hottest contenders in the global blockchain race.
Having little-to-no officially legislated regulations and having only recently announced clearer official tax guidelines (more info below), the UK has spent a great deal of time and money trailing blockchain enterprises with positive outcomes.
As with many nations, September 2017 was a watershed moment for cryptocurrency and initial coin offering (ICOs), the ban imposed in ICOs by China and South Korea began a swelling of discussion in the space with fears of a domino-effect eventually reaching every shore. It is worth noting that blockchain startups were featured in the British Financial Conduct Authority’s (FCA) June 2017 “Regulatory Sandbox” line-up, a program that enables businesses to “test innovative products, services” and the like
On September 6, 2017, the FCA had stated that it was “keeping a close eye” on ICOs, drawing similarities between the new crowdfunding method and Initial Public Offerings (IPOs) among other capital raising practices. From this, the FCA speculated that they may fall under their regulatory frameworks.
The financial watchdog had also begun to welcome businesses utilizing blockchain technology, indicating an open-minded approach was to come. That said, the FCA was urging investors to take care when approaching ICOs, citing volatility and scams as some of the reasons behind their view that ICOs are “very high-risk.”
On October 1, 2017, the FCA unveiled the results of its sandbox tests which had proven to be very successful, opening up a myriad of possibilities for blockchain enterprises in the United Kingdom. Within the document, concerns over businesses having no access to traditional banking services were raised. The FCA wrote:
“Difficulties have been particularly pronounced for firms wishing to leverage DLT, become payment institutions, or become electronic money institutions. We are concerned by what appear to be blanket refusals for certain kinds of applicant firms.”
Additionally, discussion pertaining to regulating and taxing cryptocurrencies and ICOs began to emerge due to a lack of understanding about the sector. December 2017 saw the third round of sandbox testing, with more blockchain companies featured on the list.
Moving ahead into 2018, as the crypto markets began to cool off, the UK Treasury Committee announced the launch of an inquiry into distributed ledger technology (DLT) and cryptocurrencies to examine the potential of their application on financial institutions. In it, the Treasury Committee sought to minimize consumer risks without stifling innovation, a common thread with many jurisdictions seeking to regulate the technology. At the time, Member of the Treasury Committee, Alison McGovern MP said:
“This inquiry comes at the right time, as regulators and Governments wrestle with recent events in cryptocurrency markets. New technology offers the economy potential gains, but as recently demonstrated, it may also bring substantial risks.”
In April 2018, the FCA released a statement in response to the growing number of crypto and blockchain firms. In it, the watchdog clarified that cryptocurrency derivatives could be classified as financial instruments; essentially this meant that ICO-issued tokens may need authorization from the FCA.
Not soon after this, the FCA Business Plan 2018/19 was released in April 2018 which brought to light its intentions to produce a discussion paper in collaboration with the Bank of England (BoE) and the UK Treasury. This news was followed by the UK’s cryptocurrency trade association CryptoUK, who further urged Members of Parliament (MPs) and the UK Treasury to formalize regulations.
By July, the FCA named ten blockchain firms as part of its fourth round of regulatory sandbox enterprises making up almost half of all entries into the “cohort,” displaying an increase of DLT-related participation (July 3, 2018).
A comprehensive report compiled by DAG Global, Deep Knowledge Analytics and the Big Innovation Centre in mid-July concluded that the UK is a major contender in the “Digital Economy 2.0” with fintech innovations and blockchain technologies, provoking bullish morale for the UK blockchain-ecosystem.
Building on the successes of the regulatory sandbox, the FCA announced the creation of the Global Financial Innovation Network, a collaborative entity that would act as an international sandbox with a view to nurturing technologies with cross-border applications.
Whilst the UK debated how to regulate the “wild west” of cryptocurrencies, MPs planning to force the FCA to come down heavily on illegal activity was called out by the British Business Federation (BBF), who criticized MPs for “ashamedly” focusing on Bitcoin, which in turn could damage other crypto-assets and therefore the domestic ecosystem.
Setting up 2019
Perhaps the most definitive moment of 2018 for the UK crypto-scene, was the comprehensive taxation guidelines published by the nation’s tax agency, Her Majesty’s Revenue and Customs (HMRC). Published on December 19, 2018, the guidelines detail a rather finicky set of rules and procedures on how to calculate taxes for cryptocurrencies depending on a number of circumstances.
If anything, the guidelines published at the end of 2018 could mean that the nation is beginning to seriously experiment with the economics of the sector, which will likely lead to reforms ahead of their officially mandated regulations.
While it seems as though little progress was actually made regarding regulation in the UK, the approach has been slow and calculated with a number of blockchain experiments and progressions made. It is unclear as to what 2019 holds in store for the UK, but at the very least, it’s looking relatively bright for blockchain.