The British Bankers Association and the Payments Council have called for the Government to take a ‘light touch’ to regulation of the underlying bitcoin blockchain technology, which they say has the potential to fundamentally change the way financial assets are transferred.
Responding to the Government’s call for information on digital currencies last year, the two trade bodies spell out the usual background information on risk and volatility in the market for bitcoins, and make a plea for more formalised regulation of digital currency exchanges and service providers.
One option may be to bring crytpocurrency firms under the scope of the Fourth EU Anti Money Laundering Drivective as ‘obliged entitities’.
The submission notes the problems facing regulated banks and payment services providers in meeting compliance demands while servicing the digital currency community: “If these significant compliance risks are not addressed, it may hinder the ability for digital currencies to become main-stream as PSPs and other financial institutions may not be able to reasonably satisfy their on-boarding and monitoring processes.”
The document points to recent correspondence between the Payments Council and the Bitcoin Foundation on assigning a global currency identifier to standardise its unit of measure.
“We therefore note that any regulatory initiative could also investigate the extent to which standardisation in this space could increase transparency and unambiguous identification of digital currencies as they are traded or indexed,” states the paper.
However, it is at the level of the underlying distributed ledger technology behind bitcoin that the BBA and the Payments Council are calling for the Government to tread lightly.
“The ledger technology offers potential opportunities to fundamentally change the way many value transactions both within and outside of the payments system are made, including the distribution and communication of assets, company shares, and securities,” the bodies note. “The ledger presents an opportunity for the industry to explore how this technology can be used to improve and enhance the existing fiat UK payment systems, or make use of the technology in a more structured way, similarly to that used in the commodity (such as gold and silver) markets.”
Given that the distributed ledger technology is open source and still in the early days of its development, “it might be better for any ‘intervention’ on the core technology itself to be light touch, so as to support continuing innovation in a positive way”, the paper concludes.
Whether the Government has the powers to intervene in the development of the blockchain is moot, but the interest expressed in the technology by the BBA and Payments Council is telling for the future direction of innovation within the formal payments system.