The United Kingdom Treasury’s public call for information on digital currencies closed yesterday, after a 31-day consultation period.
The Treasury issued the call on 3rd November after the Chancellor of the Exchequer said in the summer that a “major programme of work” would be launched around researching digital currencies and associated technologies.
Now, the UK Digital Currency Association and several companies in the industry have published their responses to the Treasury’s call.
The UKDCA’s 46-page response underlines the fact that digital currencies should be treated as a ‘financial measure’ and thus regulated like foreign exchange and gold. It called for a light touch from regulators, arguing that over-regulation would stifle innovation.
The association stresses that digital currencies should not be treated as ‘financial instruments‘ because this would create obligations that are “too onerous” for a new industry. However, it says that financial products built on digital currencies, like derivatives, should be regulated as financial instruments.
Not a financial instrument
The UK financial regulator defines financial instruments as transferable securities, money-market instruments and most derivatives, including futures, swaps, options and forwards.
The UKDCA says exchanges should be overseen by the financial regulator, the Financial Conduct Authority, and treated as ‘payment institutions‘.
It also recommends that exchanges be governed by the anti-money laundering regime administered by the tax authority, HMRC. Exchanges currently face difficulty registering with HMRC because their applications as bureau de changes, the category with the best fit, are usually rejected.
The association explains that it is working to develop a set of standards to promote consumer protection and limit market abuse that would operate alongside existing laws.
It has also contacted top certification houses in order to design a ‘certification mark’ that would operate as a technical standard for the industry, and has asked for government funding to kick-start the process.
The association writes:
“With government’s financial support we will be able to deliver a global standard for digital currency business compliance; combining the best existing ISO standards and new relevant cutting-edge standards.”
Appeal to intervene against banks
The UKDCA has also issued a call to Treasury to “intervene” on behalf of digital currency firms so that banks will establish relationships with companies in the nascent sector.
The UK would face dire consequences if it failed to get the regulatory balance for digital currencies right, the UKDCA warns. It named Hong Kong and Singapore as the UK’s “biggest competitors” for global digital currency businesses. The report points out that Luxembourg is the UK’s biggest competitor in the European Union as a base for those businesses.
The UKDCA says:
“If the UK is too heavy handed, domestic capital will simply move offshore and credible highly scalable digital currency businesses will not move here.”
The UKDCA wrote to members in November explaining that Treasury staffers running the consultation had said a coherent response from the association would generate the most impact. The response was drafted from comments submitted through an online survey by members and at several meetings.
Other responses largely in line
Other published responses to the Treasury call echoed several of the UKDCA’s points. Bitcoin exchange Yacuna, which is based in London, advocates regulation of digital currencies with existing laws. It also joins the UKDCA’s appeal to the government to ask banks to work with cryptocurrency businesses, saying
“The UK banking industry is currently blocking access to banking infrastructure and business accounts for businesses related to digital currency.”
Australian startup CoinJar recently relocated to the UK, partly because of a heavy goods and services tax treatment on digital currency purchases imposed by Australian authorities. In its response, it observes that UK banks’ refusal to work with digital currency businesses adds unnecessary costs to everyday business.
Neither Yacuna nor CoinJar are UKDCA members, although Yacuna said it was considering joining and CoinJar has only very recently relocated its headquarters to the UK.
A crowd-sourced response posted on the Bitcoin Foundation‘s forum and signed by several digital currency business owners including ATM operator SatoshiPoint and new UK-focused exchange Mimex, also repeated points raised in the UKDCA letter. These included intervention in the banking sector on behalf of bitcoin businesses and regulation within existing frameworks.
Regulators are making slow but steady progress in their attempts to grapple with the questions posed by the rise of digital currencies.
Yesterday, the New York State Department of Financial Services published more than 3,700 comments it received on its digital currency regulatory proposal, which has been dubbed the ‘BitLicense‘.
Featured image via Kurt Bauschardt / Flickr