The Financial Conduct Authority is to investigate ways in which the technology underpinning bitcoin can be used elsewhere in the formal financial services industry.
FCA chief Martin Wheatley made the remarks at a London conference to mark the launch of the watchdog's new Innovation Hub, which is intended to help startups deal with regulatory problems and explore policy initiatives that can support the innovation ecosystem.
The regulator is being pushed by the Government to break down barriers to entry for firms using innovative products and technology to challenge the established banking industry.
HM Treasury, under the guidance of Chancellor George Osborne, has spoken up in favour of providing the nascent crypto-currency community with more breathing space to thrive, by, for instance, addressing concerns about the application of the Money Laundering Regulations by banks, and in particular their use in denying access to banking services by firms trading in virtual currencies.
Wheatley has targeted the emerging virtual currency area as one of the main priority issues for the Innovation Hub policy team.
But for many bankers, it is the technology backbone which supports Bitcoin which offers the greatest threat, and opportunities.
In September, The Bank of England identified the underlying Blockchain distributed ledger technology as having real potential to disrupt the financial system, stating: "Since the majority of financial assets such as shares or bonds already exist only as digital records, this opens up at least the possibility for distributed ledgers to transform the financial system more generally."
Earlier this week, Swiss Bank CIO Oliver Bussmann offered the view that distributed ledgers could fundamentally change the way modern banking is done altogether.
“I believe, and this is my personal view, that blockchain technology will not only change the way we do payments but it will change the whole trading and settlement topic," he said. "When somebody with a strong brand and security level establishes it as a reliable service, then the whole industry will follow."
The FCA's Wheatley says the regulator is actively working with HM Treasury to address the issues raised by the Chancellor in the summer. "We want to understand what role regulation should play," he says. "We are also interested in exploring possible benefits from block-chain technology. How it might be used elsewhere in financial services."