JUN 04, 2014
Why The FCA Recent Comments Aren't What They Are Cracked Up To Be
The U.K. financial regulation body, the Financial Conduct Authority (FCA) announced a new regulatory initiative designed to encourage innovation.
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The U.K. financial regulation body, the Financial Conduct Authority (FCA) announced a new regulatory initiative designed to encourage innovation. Several days later, one Bitcoin site picked up on the news with and framed it in a Bitcoin light, which has led to some of the largest media outlets in the industry covering it in the same way: The FCA announced a project designed specifically to help Bitcoin companies. The truth is more nuanced and far less significant than that.
The U.K. has lax regulatory financial controls compared to many countries when it comes to digital currencies. That has already made the country a favorite among Bitcoin start-ups. The head of the FCA did made some encouraging comments, as the agency has in the past, but nothing was announced about virtual companies specifically.
FCA Chief Executive Martin Wheatly announced Project Innovate last week, a “fast-track” initiative with the intention of bringing innovation to the financial sector. While any word of regulation is sure to make some in the Bitcoin community more than a little apprehensive, Wheatly stressed that their goal is to promote innovation and not stifle it. He talked about a more friendly relationship between the FCA and financial institutions, and stated he wanted the FCA to lay out clear regulations while still allowing for a large amount of freedom in the industry.
That is what the bulk of the speech focused on. Within that speech there was a decent amount of talk about emerging technologies and trends in the financial sector, and within that: two whole words devoted to Bitcoin itself. This doesn't appear to be the long awaited clarification of the U.K.'s stance on cryptocurrencies and it certainly isn't the agency announcing that it supports Bitcoin or bitcoin-based businesses.
Instead, it is simply a small but encouraging sign that the head of its regulatory agency at least sees the potential for innovation in the Bitcoin space and that he wants to encourage all innovation.
Far more time in the speech was devoted to things like using artificial intelligence to provide investment advice and the potential implications of that.
From reading the speech's draft (and it is possible to misinterpret a speech when reading it) it seems Wheatly is more interested in starting a conversation about the need for regulation in the future, rather than advocating any specific policies.
Still, what Wheatly did say is encouraging, as short and overblown as it has become. After wondering aloud what the FCA can do to “more broadly serve the needs of innovative businesses?” Wheatly said this:
“In scope here, a number of important areas, including: digitalisation; big data analytics; venture capital; virtual currencies, crowd funding; and peer-to-peer – many of which are (or indeed have already) transformed finance in improbable timescales.”
Perhaps more encouraging than him actually mentioning “virtual currencies,” is some of the language he used while laying out Project Innovate. Wheatly stated that “it’s an imperative for regulators to be standing on the right side of progress[,]” when it comes to innovation and technology. However, when pointing to tech companies in the U.K. as examples, he exclusively mentioned fiat based companies.
One thing that may become important to bitcoin start-ups in the near future was the announcement that the FCA would issue waivers to companies that don't fall strictly within their regulations but can prove their system is beneficial for consumers. That description seems to fit Bitcoin companies, but Wheatly did not mention them specifically.
While it is encouraging to hear London's top financial regulator speak positively about the need for regulations that allow for, rather than stifle innovation, Wheatly never got into any specifics and never committed himself or the agency to any policies. Regulators go back on their promises all the time, especially unelected ones that are funded by financial institutions that may have a vested interest in seeing the cryptocurrency tide pull back.
It is great to see that the FCA is taking new technologies seriously and it is great to see Wheatly try and jump start that conversation. However, I wouldn't be celebrating the coming clarification of the U.K.'s stance on cryptocurrencies until those regulations are actually clarified. It is important to note that Bitcoin only make up a small part of a far larger speech that focused heavily on fiat regulation.