Blockchain has been in focus of attention of multiple financial companies recently. Despite a bunch of benefits the technology can bring to various industries, the question of rational, not stifling, regulation has always been open. Most regulatory authorities are skeptical about the concept of cryptocurrency since it operates beyond the central control of banks and governments.
Now, UK consumers get chance to use products based on the blockchain as Financial Conduct Authority has unveiled that several groups in its preapproval stage are developing consumer-facing and compliance products that use blockchain technology.
The UK’s Financial Conduct Authority has a reputation of one of the most forward-thinking regulators in the world. “We do think blockchain has got some potentially interesting applications and we are talking to firms thinking about how to apply that to financial services and how it could benefit consumers or indeed make the business of compliance easier,” said Chris Woolard, the FCA’s director of strategy and competition, in an interview with the Financial Times. “There may be areas where we might want to encourage it a bit.”
Blockchain can offer a number of benefits for banks as it can cut costs and speed up areas such as settlement of securities trades by providing a unique shared database across multiple locations as an immutable public ledger of transactions.
The FCA prepared an initiative called Project Innovate for companies that don’t trust the blockchain due to its vulnerability to fraud. Project Innovate offers advice to companies trying to develop cutting-edge products on what regulations they need to follow. For the first year of operation, Project Innovate assessed 177 companies and approved 40 of them.
The initiative offers a so-called regulatory sandbox, where companies can test products with temporary FCA authorisation.
According to Mr Woolard, a “small but significant number” of companies developing blockchain technology are part of the project. Any company that wants to start lending or undertake any kind of payment services in the UK needs FCA approval. As soon as it gets the approval, it will be among the first in the world to gain regulatory approval.
The FCA promised to announce more details in the coming months.
Jeremy Millar, founder of Ledger Partners, an advisory firm focusing on blockchain, estimated that nowadays financial services make up over half of the global blockchain market. “Reports have claimed up to $100bn could be saved on the post-trade settlement process by using blockchain. Another estimate by Goldman Sachs said there could be $50bn of savings in the US repo market alone. The numbers are huge,” Mr Millar said.
Greenwich Associates unveiled recent estimates to show that financial institutions will spend more than $1bn on blockchain in 2016.