Digital Currencies: Our Take on the Call for Information
HM Treasure recently published a report summarising the inputs received for their call for information on digital currencies.
The report seems to present an accurate summary of the main benefits and disadvantages for against digital currencies that we have heard of, with a primary focus on its use as a currency rather than Bitcoin 2.0 topics such as smart contracts. This is wise, given the maturity of using cryptocurrencies as a "money".
The government's next steps are as follows:
The government intends to apply anti-money laundering regulation to digital currency exchanges in the UK, to support innovation and prevent criminal use. The government will formally consult on the proposed regulatory approach early in the next Parliament.
As part of this consultation on the proposed regulatory approach, the government will look at how to ensure that law enforcement bodies have effective skills, tools and legislation to identify and prosecute criminal activity relating to digital currencies, including the ability to seize and confiscate digital currency funds where transactions are for criminal purposes.
The government will work with BSI (British Standards Institution) and the digital currency industry to develop voluntary standards for consumer protection.
The government is launching a new research initiative which will bring together the Research Councils, Alan Turing Institute and Digital Catapult with industry in order to address the research opportunities and challenges for digital currency technology, and will increase research funding in this area by £10 million to support this.
I think few would disagree with the increased funding research into digital currencies, or the improvement in skills, tools and legislation to identify and prosecute criminal activity relating to illegal use of digital currencies.
I believe that the proposed steps regarding regulation are generally sensible. Some AML regulation for digital currency exchanges, including Bittylicious, makes sense to me. I feel it may be wise to limit this to on and off ramps at this stage rather than crypto-to-crypto exchanges. A light touch approach, such as HMRC's general AML policies, make sense for fiat-to-crypto exchanges, and many legitimate businesses such as ourselves are already implementing such procedures, even if not required. Bittylicious doesn't require KYC documents for small(ish) purchases and sales, but we do for larger purchases. This is actually mostly for anti-fraud reasons, but this goes hand-in-hand with general KYC best practices.
In addition, I particularly like the initial approach to produce a set of voluntary standards for consumer protection rather than harsh regulation which will drive out innovative, small companies. A standard seal, or something along those lines, may be a good confidence indicator for consumers.
What we would like to see is more of an emphasis on convincing or even forcing banks to cooperate with cryptocurrency businesses and offer bank accounts of some sort. This is lightly mentioned in the report, with (in our opinion) a fairly poor excuse, and it would have been great to see this pushed along more strongly.
All in all, the response seems sensible and it is refreshing to hear a government that is not going overboard like certain states in the USA or even Germany trying to fit digital currencies into a legal box that doesn't quite suit.