FCA Publishes Discussion Paper on the Regulation of DLT

This week, the FCA has initiated a market dialogue focused on the risks and opportunities associated with the transformational potential of Distributed Ledger Technology (DLT) in financial services and its compatibility with existing regulatory frameworks.

The FCA continues its ‘wait-and-see’ approach before considering changes to its framework. It will instead explore emerging business models and continue to help innovators test-bed solutions in its regulatory sandbox.

The FCA remains technology neutral/ agnostic but it is encouraging to note its approach to resilience and openness to regulating on technology outcomes, in line with statutory objectives. The paper also recognises that DLT is not a panacea and that market outcomes like faster payments could be delivered by other technologies. It is indicative however of an increasingly mature approach to technology risk and the paper does recognise DLT’s innovative potential for record-keeping and efficiency.

With a voluntary standards process also underway and increasing regulatory accommodation, end-users will be more accepting of the increasing trust that DLT affords, allowing benefits around efficiency, transparency and provenance to be fully realised. This much is very encouraging for UK DLT and cements the UK’s position as a global fintech hub with a forward-looking regulatory regime.

The discussion paper asks questions around:

  • Demonstration of appropriate outsourcing arrangements with DLT third parties
  • The security of DLT systems themselves and the potential security and resilience benefits they afford
  • Specific use-cases in financial services (digital currency, re-insurance, regulatory reporting, financial crime mitigation, asset management, smart contracts, securities issuance and trading)
  • The impact on consumers
  • Relative benefits and risks associated with closed and open (public versus permissioned) networks and implications for competition

Please find the discussion paper attached below. The deadline for submissions is 17 July. techUK’s DLT Group will respond.

For more information and how to get involved please contact ruth.milligan@techuk.org 

dp17-03 (pdf)

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