Is the UK doing everything possible to regulate cryptocurrency practices?
There is little doubt that the future of finance as we know it will rely heavily on the emerging technologies and usage of cryptocurrencies such as Bitcoin, Ripple, Ethereum and Litecoin. The unsettling part is that in the UK the cryptocurrency spare remains largely unregulated.
This brings up a chicken and egg scenario – The beauty of this technology and the success of coins like Bitcoin is largely due to the very fact that they are not governed buy a central institution and is firmly in the hands of the people.
Recently concerns have been raised over the volatile nature of cryptocurrencies, and the potential for scams and their use in illegal activities such as money laundering or funding terrorism.
In response some countries have taken steps to regulate cryptocurrencies. The US for example, has attempted to regulate initial coin offerings (ICOs) with increased involvement from the Securities Exchange Commission by issuing cease-and-desist orders to illegitimate cryptocurrency traders.
Others have attempted to stamp out cryptocurrencies entirely, with China banning cryptocurrency exchanges last year and India placing a ban on trading or making purchases with Bitcoin.
Efforts to regulate cryptocurrencies in the UK
The lack of UK regulation has led some to call for greater government involvement to ensure that consumers and businesses are aware of some of the risks. Cryptocurrency trade association CryptoUK has urged the government to introduce regulation to avoid the UK falling behind the rest of the world.
In February, The Treasury Committee launched an inquiry into digital currencies and distributed ledger technology looking at what form regulation could take. The Financial Conduct Authority (FCA) has also put together a cryptocurrency regulation task force in association with the Bank of England, and guidelines on policy are due to be unveiled in September.
On Tuesday, the UK Parliament Treasury Committee met to discuss the issue of digital currency with representatives from HM Treasury, the FCA, and the Bank of England in attendance.
What was said
Due to its decentralised nature, rapid technological development, and the fact that there are now more than 1,000 cryptocurrencies available on the internet, cryptocurrency is notoriously hard to regulate. As cryptocurrency does not have a defined classification in the financial market, the FCA does not currently have any regulatory scope over it. Director of Policy at the FCA David Geale explains that most cryptocurrency activity is therefore unregulated:
“The challenge comes when you look at the bulk of this activity which is in the unregulated space around things like the utility tokens where you are buying for example future rights to access a theme park or something that doesn’t exist at the moment. Is that the sort of thing we would regulate? It’s certainly not the sort of thing we would regulate right now which I think seems to be the approach being taken internationally as well.”
Although the experts did not believe that it poses a severe enough threat to financial stability for cryptocurrency regulation to be urgent, they agreed that a regulatory framework of some sort was needed. Head of Notes Operations at the Bank of England Martin Etheridge said:
“The financial policy committee at the bank issued a statement in March confirming their view that they didn’t see a current threat to financial stability. These things are not a function as payments of settlement so that’s not a particular worry. In terms of the linkages with systemically important firms or systemically important markets, those linkages are pretty negligible right now. The market itself is small in comparison to other large financial markets, but that’s not to say we’re not also remaining vigilant.”
It is important to remember that in order for a system to work like cryptocurrency, the people must understand what its intended for and not get caught up in the over hype that is sometimes seen in this industry, and also not put themselves in a position where they are vulnerable. Cryptocurrency has a lot to offer the world and perhaps there needs to be some form of regulation to ensure that the system does not get too carried away and potentially grow to a size where people are being hurt or taken advantage of.