Answer ... UK regulators recognise the power of blockchain technologies and are welcoming of the innovative efforts of those seeking to provide blockchain solutions across the United Kingdom. The European Union is taking an equally open stance. The European Union aims to develop a competitive and innovative financial services sector, and published its Fintech Action Plan on 8 March 2018.
The Fintech Action Plan identifies 19 initiatives. The European Union does not think there is a strong case for a major overhaul of financial services regulation. However, it does want to ensure that there are no regulatory barriers to innovation that might stymie competitive efforts by EU entities. Ensuring adequate consumer protection is part of the plan to stay competitive.
Since Q1 2018, the European Commission has been monitoring cryptoasset developments, including ICOs, to determine whether EU regulatory action is required.
In Q2 2018, the commission was to consider implementing the European Financial Transparency Gateway based on distributed ledger technology (DLT). It also hosted an EU FinTech Lab, where EU and national authorities could engage with technology innovators in a neutral, non-commercial space.
By Q4 2018 the Fintech Action Plan called on European supervisory authorities to identify best practices for fintech companies and, where appropriate, issue guidelines; and for fintech standards to be set in a coordinated way. Major standard-setting bodies such as the European Committee for Standardisation and the Intentional Organisation for Standardisation were to be involved.
By Q1 2019, the European Commission was to present a report on best practices for regulatory sandboxes and set up an expert group to assess any unjustified regulatory obstacles to financial services innovations.
Those in the DLT business were encouraged by the European Union to develop by mid-2019 standardised APIs that are compliant with the Payment Services Directive and the GDPR.
The EU Blockchain Observatory and Forum (EUBOF), together with the European standardisation organisations, will appraise issues relating to scalability, legality and governance. They will do this in the context of standardisation efforts.
A specialist commission has been set up to establish the European Union’s approach to blockchain. It has identified some uses of blockchain, especially in the financial services arena; for example, it recognised the following use cases that should not be ignored:
- automatic execution of insurance contracts;
- money transfer;
- peer-to-peer lending; and
- transfer of securities.
The commission recognises that blockchain has a wider scope than financial services, and that close collaboration between innovators, users and regulatory bodies is beneficial. The EUBOF was established in February 2018 for a two-year period, during which - among other things - it will conduct a feasibility study of an EU public blockchain infrastructure. The EUBOF will propose initiatives, funding measures and even a framework to enable scalability, develop governance and standards, and support interoperability. Twenty-two member states signed a declaration establishing a blockchain partnership as a cooperation vehicle for sharing technical and regulation experience and expertise among member states.
There is also a pilot project for applying blockchain technology to the Prospectus Directive and the Transparency Directive, both of which regulate securities offerings. The pilot project aims to test and explore blockchain capabilities for:
- sharing financial data within the European Union;
- promoting cross-border investment; and
- providing investors with easy access to regulated financial information on companies listed in EU regulated markets.