Reaction to the March 19 UK Treasury report among British digital currency startups was generally positive. Their post-release comments and comments from the newly-released Treasury’s Call for Information made the following points clear:
- Crime prevention is a greater priority than consumer protection.
- Differentiation between industry sectors is important when designing regulations.
- There is already is movement towards self-regulation.
Crime prevention is key to growth
Enthusiasts for the Treasury report’s anti-money laundering (AML) proposals praised both their deliberate pace and their potential for improving the financing climate for digital currency startups. QuickBitcoin co-founder Hugh Halford-Thompson summed up this attitude:
It’s good that they see our industry as a nascent one where heavy handed regulation could be detrimental. The government has a real chance here to legitimize the sector. I hope that with this banks will change their tack and stop blacklisting the word ‘Bitcoin.’
Dissenters, like Azteco‘s Akin Fernandez, fear Bitcoin’s exodus from Britain:
It’s the opposite of what we asked for. In our submission, we made it plain that arbitrary, irrational regulation is precisely what is not needed. We wanted Britain to be the top destination for Bitcoin startups. As far as Azteco is concerned, we can incorporate in any jurisdiction, and will choose the one that is best suited to our business model.
Fernandez’s voice is a relatively lonely one; most startups view some form of crime prevention positively.
Consumer protection is more controversial, with proposed approaches ranging from complete laissez-faire to incorporation of digital currency in the FCA system.
Treasury’s proposal to develop voluntary standards in cooperation with BSI (British Standards Institution) after obtaining significant input from the digital currency community is a compromise that industry group UKDCA endorses.
Only regulate where necessary
Software developers who don’t handle client money were pleased that the report recognized their lesser need for regulation. Blockchain Global Policy Counsel, Marco Santori praised Treasury for aiming AML measures at the right target:
If any digital currency business model creates a risk of money laundering, it’s the exchange model. HMT (Her Majesty’s Treasury) did research sufficient to understand this, and has decided to control for it by developing AML requirements. This is in welcome contrast to the blunderbuss approaches we’ve seen in other jurisdictions.
Developers praised the “sandbox” proposal that would allow startups to operate in a relaxed regulatory environment during their early development.
Some will not wait
Some members of Britain’s digital currency community aren’t waiting for the government’s lead but are taking initiatives to regulate themselves.
For example, a Crypto Facilities spokesperson said the derivatives trader has imposed “strict” KYC and AML procedures and is ready for “reasonable guidance” from the government. The spokesperson added:
We think best practice standards would benefit the industry, provided that they do not unduly burden UK-based businesses, reflect the intricacies of digital currencies and are commensurate with the limited resources of many digital currency-related companies and the early stage of the industry as a whole.
Similarly, firms that store digital funds for customers have been enacting consumer protection measures on their own. Multi-sig wallet provider BitGo collaborated with C4 to draft a Cryptocurrency Security Standard (CCSS).
It is positive that the industry is being left to develop its own technical standards (led by the UKDCA) – self regulation will promote innovation much more effectively than onerous regulation. These measures will help to make the UK a global hub for digital currencies and maintain its position at the forefront of FinTech innovation.
It may well turn out that the result of the Treasury initiative is a British digital currency industry in which government and the private sector cooperate to provide a competitive space that balances the need to innovate against the need to safeguard the public. Treasury’s willingness to consult with the industry along each step of the regulatory development process offers hope for the industry’s future.