What Circle's UK E-Money License Means for Bitcoin and Blockchain

Industry commentators weigh in on the impact of Circle's new e-money license in the UK.

AccessTimeIconApr 12, 2016 at 3:11 p.m. UTC
Updated Mar 6, 2023 at 3:07 p.m. UTC
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Circle Internet Financial set off a wave of positive press last week when it revealed the news that it had become an electronic money institution registered under the Financial Conduct Authority (FCA) in the UK.

Though enthusiasm was high, there was confusion over the nature of the licensing and how it enables Circle to further its operations. Of note, is that the e-money license is not digital currency-specific, with the E-Money Directive being introduced in the UK in September 2009. The FCA, sources noted, is still debating how it will seek to regulate digital currencies in the UK.

However, the e-money license does now allow Circle to work with the UK Treasury on a process by which it will inform regulators in other European nations of the license in a bid that could find it expanding its fiat money services across the European Union.

For now, the licensure proved sufficient to enable Circle to establish a relationship with UK banking giant Barclays. As such, industry commentators were quick to voice their belief that the announcement would do much to improve the perception of bitcoin and blockchain technologies more broadly.

research director James Wester, for instance, said the news was perhaps a sign that the idea is falling out of favor that blockchain and distributed ledgers would disrupt payments and banking, and that banks may now become key drivers of the emerging technology’s wider adoption.

Wester told CoinDesk:

"Banks themselves are [now] exploring the potential for the technology. So over time I think you will see more connections and relationships between the community building up around blockchain technologies and financial service providers, vendors and regulators."

analyst Gil Luria echoed this view, stating he believes Circle’s license would put pressure on global regulators, an opinion that was widely voiced in the community.

"I expect other [regulators] to simply feel comfortable regulating the actual financial service provided without caring what network they are provided on," he said.

Overall, sources compared the license to Circle’s traditional money services business (MSB) licenses in the US, where it is authorized to provide services in US dollars in all 50 states.

As such, the e-money license, they indicated, serves as a counterpart to its digital currency services, one that more directly relates to the company’s goal of innovating on the payments industry business model with blockchain technology, and that as such, is unlikely to have a wider impact on startups.

Market leader

Most immediately, commentators agreed that the announcement further positioned Circle as a market leader in the digital currencies space. Founded in 2013 by Brightcove founder Jeremy Allaire and its senior architect Sean Neville, Circle has already raised $76m over three funding rounds, boasting investors such as Goldman Sachs and Fenway Summer.

Wester indicated that Circle’s license would now allow it to perform limited cross-border and cross-currency transfers from Europe to the US, a move that would allow them to test a prominent use case for blockchain at scale.

"[This] is particularly interesting given that those transactions have often been cited as a good use case for blockchain," he said.

Circle is also notably the only bitcoin services company to have received a license from New York state since the introduction of its state-specific regulatory regime, the BitLicense, in early 2015. According to CoinDesk estimates, more than 20 companies remain waiting for a formal approval for this designation, though the NYDFS has promised forthcoming news.

BuckleySandler LLP counsel Dana Syracuse, who helped develop the BitLicense application in New York, said that the licensing is an example of how companies in the financial services industry can use regulation to compete for investment and business.

"Ultimately, compliance distinguishes companies in the market," he said.

Circle chief compliance officer John Beccia further stressed that regulation has become a key competitive advantage for Circle, even if other companies may not need a traditional money services license as part of their strategies.

He told CoinDesk:

"Having taken that approach from day one to be engaged with regulators, to be very comprehensive, it’s been helpful in attracting investors and banks and in being able to get to market quickly."

UK pulls ahead

In a global context, commentators saw the news as the latest that finds the US and the UK competing for a front-runner position as the leader in global FinTech innovation.

Commentators in the US were keen to stress that the announcement is perhaps proof that the UK’s strategy toward encouraging blockchain industry development is proving more successful in encouraging innovation.

Coin Center director Jerry Brito, for instance, positioned Circle's opportunity to extend services across the EU as one that would not be possible in the US due to its state-by-state approach to bitcoin regulation.

"If the US doesn’t wake up, it’s going to find itself behind and it’s going to lose the competitive edge," Brito told CoinDesk, adding:

“This isn’t by chance, the UK government has identified this as a way they can compete with the US globally.”

Brito cited the recent news that bitcoin exchange itBit had stopped serving consumers in Texas as evidence of how this is harming development of a more robust digital currencies ecosystem, holding it up as an example of state-by-state inconsistencies.

Beccia agreed with this opinion, praising the FCA for a "reasonable" approach to the regulatory process.

“The message is that the UK is being very proactive on this, they’re encouraging FinTech,” he said. “It’s been a really encouraging environment.”

The viewpoint that this development was potentially a negative for the US was supported by Consumers’ Research executive director Joe Colangelo, who voiced his belief that the announcement could encourage more innovation abroad.

He concluded:

"I wouldn't be surprised if this simplified approval from the UK led to more bitcoin and blockchain companies considering setting up shop overseas in the future."

Disclaimer: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Circle.

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