Regulate bitcoin, but leave the blockchain alone say banking trade bodies

Regulate bitcoin, but leave the blockchain alone say banking trade bodies

The British Bankers Association and the Payments Council have called for the Government to take a 'light touch' to regulation of the underlying bitcoin blockchain technology, which they say has the potential to fundamentally change the way financial assets are transferred.

Responding to the Government's call for information on digital currencies last year, the two trade bodies spell out the usual background information on risk and volatility in the market for bitcoins, and make a plea for more formalised regulation of digital currency exchanges and service providers.

One option may be to bring crytpocurrency firms under the scope of the Fourth EU Anti Money Laundering Drivective as 'obliged entitities'.

The submission notes the problems facing regulated banks and payment services providers in meeting compliance demands while servicing the digital currency community: "If these significant compliance risks are not addressed, it may hinder the ability for digital currencies to become main-stream as PSPs and other financial institutions may not be able to reasonably satisfy their on-boarding and monitoring processes."

The document points to recent correspondence between the Payments Council and the Bitcoin Foundation on assigning a global currency identifier to standardise its unit of measure.

"We therefore note that any regulatory initiative could also investigate the extent to which standardisation in this space could increase transparency and unambiguous identification of digital currencies as they are traded or indexed," states the paper.

However, it is at the level of the underlying distributed ledger technology behind bitcoin that the BBA and the Payments Council are calling for the Government to tread lightly.

"The ledger technology offers potential opportunities to fundamentally change the way many value transactions both within and outside of the payments system are made, including the distribution and communication of assets, company shares, and securities," the bodies note. "The ledger presents an opportunity for the industry to explore how this technology can be used to improve and enhance the existing fiat UK payment systems, or make use of the technology in a more structured way, similarly to that used in the commodity (such as gold and silver) markets."

Given that the distributed ledger technology is open source and still in the early days of its development, "it might be better for any ‘intervention’ on the core technology itself to be light touch, so as to support continuing innovation in a positive way", the paper concludes.

Whether the Government has the powers to intervene in the development of the blockchain is moot, but the interest expressed in the technology by the BBA and Payments Council is telling for the future direction of innovation within the formal payments system.

Comments: (7)

A Finextra member
A Finextra member 20 January, 2015, 12:41Be the first to give this comment the thumbs up 0 likes

Perhaps one day I'll understand this article!

Gerard Hergenroeder
Gerard Hergenroeder - Payments Shark - Millersvile 20 January, 2015, 15:03Be the first to give this comment the thumbs up 0 likes

The most important thing for any currency is "trust". We all saw what happened to Bitcoin. Someone stole some coins from the fancy cookie jar! Unregulated currencies to be really successful must be stable and have a critical mass appeal. Bitcoin behaved more like a security than a currency during its short tenure.

Time and time again we have seen unregulated markets go into chaos. Even the former Chairman of the Federal Reserve admitted that he was wrong when he believed that markets are naturally self-adjusting. The world found out differently when the global economy nearly collapsed as a result of lax oversight on the mortgage business. The world still has not fully recovered from that mess.

As a consumer why would I want to use an unregulated currency since most of the current ones work fine and cost nothing or very little.  I know I have certain protections if something goes wrong in a regulated world. Unregulated currencies are "cool", but when it comes to my money I just do not trust them since I've seen the "Good , the Bad and the Ugly" in my 40 years in this business.

If digital currencies want to really go main stream, I strongely suggest that they grow up and get the "Good Housekeeping Seal of Approval"  via an international regulatory body. This is my challenge to the proponents of such currencies to enable them to realize market success -- improve the value proposition by adding the "trust" factor.


A Finextra member
A Finextra member 20 January, 2015, 23:563 likes 3 likes

Nice to see the BBA and Payments Council take an enlightened stance here. Too much of the discussion is overly focused on the notion of Bitcoin as an economic development, but its the underlying blockchain that has the much more far ranging implications. Bitcoin will not itself be a consumer proposition anytime soon, its too complicated. But the underlying technology of a decentralised secure transaction authentication network has ramifications that both financial services and tech companies need to get to grips with now. Potentially far more disruptive than anything we've seen yet this century (potentially)

James Piggot
James Piggot - Finastra - London 21 January, 2015, 09:282 likes 2 likes

Yes totally agree with what Gilles is saying above, the potential of the Blockchain as a transaction and payments engine is huge. Unfortunately this has been clouded by the volatility and problems with Bitcoin exchanges such as Mt Gox.

The post on Ripple made here on Finextra by Andrew Owens is an example of the potential (see Did we solve a payments problem that no longer exists?) that the Blockchain or similar mechanism have for revolutionising payments and as Gilles says it is something both Fintech vendors and banks need to get to grips with sooner rather than later.


Nick Collin
Nick Collin - Collin Consulting Ltd - London 21 January, 2015, 10:322 likes 2 likes

I too agree with Gilles and James.  It's the underlying blockchain technology which is the significant thing here, not Bitcoin as a product as such.  The BBA and Payments Council seem to have got it absolutely right this time.

A Finextra member
A Finextra member 21 January, 2015, 11:09Be the first to give this comment the thumbs up 0 likes

I agree that there is a great deal of value in the underlying technology.  New approaches to financial services are being developed using blockchain, and digital currencies.  The UK has got to investigate, or we shall be left behind.

Tom Hay
Tom Hay - Payment Systems Europe - London 21 January, 2015, 13:56Be the first to give this comment the thumbs up 0 likes

The blockchain is rapidly ascending the slope of inflated expectations. Distributed ledger and decentralised consensus technology will certainly enable whole new classes of application and ways of doing business, but there are currently some significant gaps between technology and the real world. If ledger entries represent real world objects, and the ledger show a transfer of ownership, who is going to enforce it if one party reneges, and under what contractual/legal framework? How will smart contracts, implemented in code rather than legalese, cope with inconvenient real-world events such as the death of one of the contracting parties? We need to allow time for the wheat to get sorted from the chaff, and for sensible business models to emerge from the current ferment. At that point I expect sets of rules to emerge that look rather similar to current payment scheme rules, supported by traditional contractual frameworks and enforced by good old fashioned centralised authorities. Until then, caveat emptor ...