This week's news that the UK government will seek to regulate digital currencies made waves in the local startup community.
The UK Treasury report, revealed on Wednesday as part of chancellor George Osborne's annual budget, outlined plans to curb criminal activity via AML (anti-money laundering) regulation and allow digital currency companies to opt-in to standardised consumer protections following May's election. The government also proposed injecting £10m into research on digital currencies as part of its larger pledge to innovation in FinTech.
While many of the 120 submissions that informed the Treasury's plans came from payment bodies, banks, academics, consultancies and fellow government agencies, bitcoin companies also weighed in on the future of digital currency regulation in the UK.
Now that the report and its conclusions are public, are the UK's crypto startups happy with the balance that has been struck? We tracked them down to find out.
Chief among the Treasury report's proposals was the introduction of anti-money laundering regulation for digital currency exchanges operating in the UK.
The exact scope of this regulation (and the regulator enacting it) will be up for debate in the next parliament, but it is likely that exchanges in the UK will have to perform tighter background checks on the digital currency flowing through their books. In turn, customers buying bitcoin may no longer be able to do so anonymously.
Marc Warne, founder of UK bitcoin marketplace Bittylicious, praised the sensibility of the proposals, but questioned regulating crypto-only exchanges at this early stage:
co-founder Hugh Halford-Thompson was also impressed by this 'light-touch'. He, like many others, hopes that the government's actions will help bitcoin companies score banking relationships, which have so far proved elusive both in the UK and abroad.
Not everyone agrees, however.
Rather than legitimising the industry, Akin Fernandez, who runs London's bitcoin voucher shop Azteco, said he suspects the Treasury's "artificial restrictions" will force the UK's bitcoin companies to move abroad. He added:
Bitcoin firms already implementing background checks on customers are more welcoming.
Speaking to CoinDesk, a spokesperson from London-based bitcoin derivatives trading platform, Crypto Facilities, said the company already has "strict" KYC and AML procedures in place and is prepared to comply with "reasonable guidance" from the government. The company also welcomed what it termed as the UK's active and open approach towards digital currencies, adding:
One of the UK's top Local Bitcoins traders, who wished to remain anonymous, said the regulations will probably be workable for his business, which also requires users to present proof of identity. He has made several thousand trades since joining the platform.
Much like New York, which announced that software developers would be exempt from its forthcoming BitLicense, there is no indication that the UK will require digital currency startups to comply with regulation if they do not hold customer funds.
, which operates an office in East London, provides a range of bitcoin tools, including a wallet service. Unlike other wallet providers however, its users retain custody of their private keys.
The company's Global Policy Counsel, Marco Santori, praised the line the report has drawn between exchanges and other bitcoin businesses:
He added that the Treasury's proposals are likely to put consumers first:
Jonathan James Harrison, formerly of ATM startup Satoshipoint, started a new software venture, Telebit, last month. The service, which operates on Telegram, lets the messaging app's 50 million monthly users send bitcoin to each other without the need to register. Unlike Blockchain, Telebit does store users' funds in a centralised company wallet.
He added that the report comes as welcome news to bootstrapped startups who may be unable to afford legal advice and compliance officers.
The Storage Providers
While respondents to the Treasury's Call for Information were fairly united on the need for crime prevention, they were more divided on the subject of consumer protection. Just under half didn't think the government should regulate on the subject, while others advocated to adapt existing FCA frameworks for consumers.
Indeed, bitcoin custodians – companies who hold funds on behalf of customers – have been moving towards standardised practices for some time. Multi-sig wallet provider BitGo recently joined with C4 to create a draft Cryptocurrency Security Standard (CCSS), while UK bitcoin vault Elliptic has taken steps to audit and insure its operations.
's COO Tom Robinson said the Treasury's conclusions mirrored the recommendations put forward by the company:
One of the best-funded startups in the space, Circle, which operates out of Boston and Dublin, also offers a bank-like service for bitcoin users, with an emphasis on insurance and security.
Chief Compliance Officer John Beccia praised the report for its "proactive" stance, which he said doesn't overburden businesses:
Adam Cleary, the founder of Bullion Bitcoin, a storage provider and gold-bitcoin exchange, also echoed this sentiment:
The specifics of the Treasury's plans will undergo a consultation process in the next government. Whether the UK will succeed in its ambition to create a world-leading bitcoin hub will become clearer in time. For now, the nation's bitcoin ecosystem remains positive.
What are your reactions to the Treasury report? Share your views in the comments section below.
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