On 22 of February the Treasury Committee launched an inquiry into the role of digital currencies and the technologies behind them. The objective of this inquiry is to increase understanding of digital currencies and distributed ledger technologies (such as blockchain), to analyse the impact, risks and opportunities for consumers, businesses, and the financial sector as a whole and prepare an adequate regulatory response.
This inquiry has emerged in the context of global interest in cryptocurrencies and concerns in relation to the lack of transparency and protection for consumers and businesses. It follows the publication of the Financial Conduct Authority (FCA)’s Feedback Statement on distributed ledger technologies, and an alert warning consumers of the speculative nature and high risks of Initial Coin Offerings (ICOs). In its Feedback Statement the FCA noted it would “gather further evidence and conduct a deeper examination of the fast-paced developments… to determine whether or not there is need for further regulatory action in this area”.
The inquiry will examine the use of digital currencies and distributed ledger technology in the UK covering:
- The role of digital currencies in the UK, including the opportunities and risks digital currencies may bring to consumers, businesses, and to the Government bodies;
- The potential impact of distributed ledger technology on financial institutions, including the central bank, and financial infrastructures; and
- The regulatory response to digital currencies from the Government, the FCA and the Bank of England in relation to Anti-Money Laundering legislation and how regulation could be balanced to provide adequate protection for consumers and businesses without stifling innovation.
It is interesting to see some of the issues the Committee will consider while assessing the results of this inquiry, including whether digital currencies are ultimately capable of replacing traditional means of payment, how to find the right balance between regulating digital currencies and provide adequate protection for consumers and businesses without stopping innovation, and what lessons can the UK learn from overseas.
The deadline for written submissions is Friday 13 of April. Although the Committee has not set a timeline for this inquiry yet, firms operating in the digital currency sector should keep an eye on this space to have a hint of how the result of this inquiry would impact their business.