Financial Conduct Authority (FCA) Opens Consultation with Cryptocurrency Stakeholders for Regulatory Clarity
The Financial Conduct Authority () has started consultations with the UK’s cryptocurrency market participants to find out the exact digital assets that need to be regulated and the best way to regulate them so as not to stifle innovation while also adequately protecting consumers from the risks, according to consultation published on January 23, 2019.
The FCA’s Consultation Aimed at Fostering Regulatory Clarity
As by BTCManager in October 2018, the UK’s cryptoassets taskforce consisting of the HM Treasury, the FCA and the , released a final report on cryptocurrency, providing an overview of the UK’s regulatory approach towards the nascent digital assets class and DLT in the region’s financial ecosystem.
Now, the FCA has taken things a step further, by opening up channels with all stakeholders in the UK’s cryptocurrency industry, to gain feedback on how to regulate the fast-growing markets for the good of all.
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Consulation and policy timeline looks to conclude in the Summer of 2019.
(Source: )
As stated in the latest FCA consultation paper, due to the proliferation of , altcoins, and , it has become pertinent for the FCA to formulate a clear cut regulatory guideline to enable market participants to fully understand the activities that fall under the purview of the FCA and for which they need authorizations.
The regulator also aims to help cryptocurrency investors to come to grips with the market and “the implications for the type of protection they are afforded depending on the crypto product.”
Per the FCA, the final guidance which will be released much later will make it easier for market participants to know whether the cryptoassets they use falls under its jurisdiction, thereby enabling them to have a “better understanding of the rules that apply to their business.”
Token Classification and Regulating to Foster Market Growth
The FCA’s latest consultation aims to find out the best classifications for cryptocurrencies. Specifically, It wants to know if cryptoassets should be considered as:
“Specified Investments under the Regulated Activities Order, Financial Instruments under the Markets in Financial Instruments Directive II, E-Money under the E-Money Regulations or captured under the Payment Services Regulations.”
In an interview with Investment Week, a British financial publication, Jill Lorimer, partner at law firm Kingsley Napley, reportedly that the FCA consultation is a welcome development as a robust, non-hostile regulatory framework and is “essential to the UK maintaining its position as one of the most attractive destinations for cryptoassets innovation.”
Specifically, all cryptocurrency exchanges, custodial services, financial advisers, consumer organizations, and every other concerned party are required to send their feedback to the FCA by April 5, 2019.
There are few people who have worked in the blockchain technology space for so long and maintained such a seemingly disinterested and skeptical perspective on the emerging technology as Tim Swanson. Through numerous books and a blog, Tim has shown a knack for going out of his way to do deep within the blockchain space.
This week on Let’s Talk bitcoin, Tim Swanson, Director of Research at Post Oak Labs, talked with Epicenter’s Brian Fabian Crain and Sebastien Couture.
His most notable work within the space has happened as Director of Market Research at R3, the first blockchain enterprise consortium for the financial services industry. During his time at R3, Tim assessed several hundred entities — companies, startups and universities — working on some type of blockchain initiative. His experience gave a full range of good, bad and ugly business operations and blockchain propositions that existed in the early stages of this industry.
Whether you agree with his stoic perspective or not, it may be a good remedy for the mania that has resulted from bitcoin’s phenomenal price increase this year. As new investors flood in the crypto community and more and more people begin talking about blockchain technology, it’s never a bad idea to be reminded of how the industry has developed.
“Historically, we’ve seen a lot of manias happen in tech: social media, solar panels, AR, VR, etc. I don’t see the benefit in becoming a fanboy in anything at this early, early stage.”
On the current state for the enterprise blockchain market
Swanson proposed that there has been a significant shift of attention in 2017 from enterprise blockchain to Initial Coin Offerings (ICOs), due in large part to the amount of money that has been raised this way. Referencing the , Swanson believes blockchain enterprise adoption is currently in the “trough of disillusionment.” This stage comes after the initial peak of expectations where interest wanes as experiments and implementations fail to deliver. This is also where many producers of the technology either give up or receive continued investment for improving the products to the satisfaction of early adopters.
“The problem as a whole for the enterprise blockchain space is that it hasn’t managed any of the expectations it initially set out to accomplish. In the beginning, there were brash claims like putting the entire United States equities market on a blockchain in less than a year. Over time, it became clear that something like that was not possible. Because of the unmanaged expectations coupled with the retail enthusiasm coming from the consumer side seeing how blockchain could help them, where in reality, enterprise is a long-term cycle and build-out, many people lost interest once they realized they could make money much faster through ICOs.”
Swanson listed a number of startups working on the enterprise blockchain side in New York, London and the west coast, including , , and , among others, as well as and , both of which Swanson still advises.
“If you look at funding for those companies — as an aggregate they’ve raised maybe $400-450 million dollars. For comparison — and it’s not an accurate comparison — ICOs in the month of June raised over $600 million dollars. It was a shift in enthusiasm from people who wanted to get very rich, very quickly. The fact of the matter, even for ICOs, is that you can’t bypass the requirement-gathering necessary to build a platform that can work with existing institutions and existing regulatory and industry requirements.”
“You can’t just build an aeroplane, convert it into a helicopter then sell it to a bunch of helicopter enthusiasts. Ultimately, somebody will have to build applications and that’s why building an ecosystem and community is so important.”
Why Aren’t There Any New Enterprise Blockchain Companies?
Swanson attributed the lack of new enterprise blockchain companies to the difficulty new startups face in working against the existing competition within the space. Established companies have a head start in acquiring the essential ingredients for success in the enterprise blockchain space: capital and some kind of partnership with regulators or players of the existing infrastructure.
Furthermore, Swanson suggested that most of the obstacles encountered by enterprise blockchain companies could be easily surmounted by larger players:
“Large enterprises like Oracle, IBM, Sap, Microsoft have the capacity and budgets to acquire any of the enterprise startups. Oracle alone could acquire all the enterprise startups themselves and not blink much of an eye.”
Transitioning from Proof of Concept to the Pilot Stage
Swanson stated that one of the most critical obstacles for enterprise blockchain startups to be mindful of are the (PFMI). These are a set of standards adopted after the 2008 financial crisis which the international community considers fundamental to strengthening and preserving financial stability.
“These principles are intended to prevent a snowball/domino affect where a local problem could potentially take down an entire system,” said Swanson. Due to the nature of these principles and how they interact within existing financial infrastructure, changing legacy infrastructure by integrating a blockchain that does not comply with these principles is far more time consuming and costly.
“Within these large corporations, you can’t just turn off legacy infrastructure, then turn on your blockchain version and continue production. Things have to be run in parallel for a while. It takes time and talent.”
The future of the blockchain in enterprise is not necessarily tied to more infrastructures, Swanson concluded. “Instead of building out more infrastructure, I am much more interested in seeing applications built on top of existing infrastructure.”
to hear Swanson on busting hype, the recent ICO spike and the rise of cryptocurrencies as a new asset class among other things.
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