SOME THOUGHTS ON BLOCKCHAIN INNOVATION POLICY
The UK is to launch a sandbox initiative next month. Singapore has been talking about something similar. The idea behind sandbox is to test out new innovate ideas in fintech, but without full blown regulation.
The Financial Conduct Authority (FCA) is not in a position to disapply UK or EU law, but can waive its own rules and provide no-action letters.
Other countries should follow suit, with three key areas of policy to encourage the fintech sector:
- Innovation hub – open outreach between regulator and innovators
- Sandbox environment to test out new ideas
- Proportionate regulations for cryptocurrency and blockchain tech.
As stated by Commissioner Giancarlo of the Commodity Futures Trading Commission (CFTC), an international and coordinated approach is required for blockchain tech. This view is backed by Greg Medcraft, Chairman of Board of the International Organization of Securities Commissions (IOSCO) and the Australian Securities and Investments Commission (ASIC): “The challenges of blockchain cannot be managed by individual jurisdictions acting on their own. Multilateral action is needed. This is where IOSCO has a role. We have the opportunity to ensure a coordinated and co-operative approach.”
I am a little sceptical of an approach that bans cryptocurrency and then endorses blockchain technology. Note that in Russia, use of cryptocurrency could involve up to seven years' imprisonment. The lines between the two are blurred and will continue to be that way. Even a private blockchain can decide to have its own cryptocurrency. It is still far too early to take a hardline in terms of policy. I can obviously see the concerns countries may have regarding capital flight and anti-money laundering (AML) or counter terrorist financing (CTF), however, those can be addressed through regulation of intermediaries rather than an outright ban.
Lastly, we should have one eye on debates that may fundamentally affect the growth of blockchain technology. For example, the end-to-end encryption debate with Apple. This would have a fundamental impact on blockchain technology projects that are outside decentralised protocols. For example, the R3 initiative, Eris industries and Ripple all rely on encryption to secure databases and digital assets. If they become a target for governments then the benefits of blockchain technology will be undermined.