Distributed Ledger Feedback Paper Released by UK Financial Conduct Authoritybr>
The Financial Conduct Authority (FCA), the financial regulator equivalent to the US Securities and Exchange Commission, has published a report based on feedback from an earlier discussion paper on distributed ledger technology (DLT).
Back in April, the FCA sought stakeholder views on the potential for future development of DLT in the markets it regulates. The regulator received 47 responses from a wide range of market participants, including regulated firms, national and international trade associations, technology providers, law firms and consultancies.
The FCA said that market participants expressed their support for the regulator’s ‘technology-neutral’ approach to regulation and welcomed the FCA’s open and proactive approach to new technology, including its Sandbox and RegTech initiatives. Respondents suggested that current FCA rules are flexible enough to accommodate the use of DLT by regulated firms. Many respondents also suggested that DLT solutions could deliver regulatory requirements more efficiently than current systems, substantially reducing costs for firms and regulators alike.
Some market participants, however, have raised concerns about the compatibility of permissionless networks with the FCA’s regulatory regime. The regulator stated that they are open to all forms of deployment of DLT – including both permissioned and permissionless DLT networks – provided the operational risks are properly identified and mitigated.
“The FCA will continue to monitor DLT-related market developments, and keep its rules and guidance under review in the light of those developments,” the regulator said. “It will work collaboratively with industry, HM Treasury, the Bank of England, the Information Commissioner’s Office and other UK bodies to ensure a coordinated approach towards DLT in the UK. At an international level, the FCA will work closely with national and international regulatory bodies to shape regulatory developments and standards.”
In September, the FCA issued a report on initial coin offerings (ICO), calling them “high-risk, speculative investments,” and warning that only experienced investors should partake of them, those “prepared to lose their entire stake.”
In the feedback statement, the FCA highlighted how an ICO-related business proposition needs to be designed to satisfy the ‘consumer benefit’ condition for access to the FCA’s Innovate facilities. The regulator said it will gather further evidence and conduct a deeper examination of the fast-paced developments in the ICO market. The findings will help to determine whether or not there is need for further regulatory action in this area beyond the consumer warning issued in September.