The UK financial regulator has indicated that the technology underpinning bitcoin could exist within its regulatory regime and be more widely used in financial services.
The Financial Conduct Authority (FCA) previously issued a discussion paper on the usage of distributed ledger technology, commonly referred to as blockchain, in markets the FCA regulates.
Many respondents said the technology could deliver regulatory requirements more efficiently than current systems, “substantially reducing costs for firms and regulators alike”, the FCA said.
The regulator received 47 responses from regulated firms, law firms, trade associations and consultancies.
However, some respondents doubted the compatibility of “permissionless” networks with the FCA regime. Permissionless networks allow general public visibility of transactions online and are open for broad participation whilst “permissioned” networks typically feature a ‘gatekeeper’ who controls access, the regulator said.
But based on the feedback and its own work, overall the regulator is open to all forms of deployment of distributed ledger technology, including both permissioned and permissionless networks, provided the operational risks are properly identified and mitigated.
The regulator stressed that its discussion paper had not been about bitcoin and other cryptocurrencies, but the FCA did say it would gather more evidence about the initial coin offering market to see whether there was a need for further regulatory action beyond a consumer warning issued in September.
Christopher Woolard, executive director of strategy and competition at the FCA, said: “The original paper opened a discussion about DLT [distributed ledger technology] and the volume and breadth of responses we received from the industry demonstrates the significance of this issue.
“DLT has the potential to transform practices across a number of markets, sharpening competition and improving risk management. At the same time we have to be alive to the risks of certain applications of it."
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