Thanks to its strong reputation as a hub for financial and technological innovations, the UK has the potential to define itself on the global stage as a blockchain haven. This reputation, along with its sophisticated legal and regulatory system, will aid the UK in creating an attractive ecosystem for businesses and entrepreneurs. At the forefront of blockchain implementation in the UK are the UK Government, Parliament, and the Financial Conduct Authority (FCA).
The UK government has been assessing applications of blockchain for some time. The report Distributed ledger technology: beyond Blockchain (January 2016), prepared by Sir Mark Walport, the UK Government’s Chief Scientific Adviser, provided recommendations for the use of blockchain to meet national needs and to ensure the UK’s competitiveness in the global arena. Recommendations included providing ministerial leadership, establishing a regulatory framework, and ensuring a close partnership between the public and private sector within the UK and between the UK and other nations.
Innovate UK, the government’s innovation agency, announced in January 2018 that it would invest £19 million into blockchain-based technologies. The agency will invest in projects which will result in new products or services in the fields of emerging and enabling technologies, including distributed ledgers. The agency also offered a further £12 million ($16.8 million) for businesses trying to recruit graduates to help develop their project. Notably, in July 2017 it sought pitches from groups which could implement blockchain tools into emerging health technologies.
The UK is also looking to create and foster international cooperation in the implementation of blockchain technology. As such, it is a signatory, along with 21 other countries, to the Blockchain Partnership (April 2018). The Declaration aims to share and pool together Blockchain experience and expertise across Europe.
The UK Parliament has also shown firm interest in assessing blockchain implementation: The report Distributed Ledger Technologies for Public Good: leadership, collaboration and innovation (November 2017) (49), led by Lord Holmes and published by the House of Lords, sets out key areas across the public sector where DLT could enable increased safety and security, transparency, traceability and trust, reduce cost and increase service quality for the citizen. The report considers major areas of opportunity such as: border control, national security, taxation and benefits payment, health assurance, food standards and safety, cybersecurity and public procurement.
Parliament has also established the All-Party Parliamentary Group on Blockchain (APPG Blockchain) set up in January 2018, which analyses and advocates for the disruptive impact of blockchain and the positive effects that it can bring to the UK economy on both an industrial and governmental level. In 2019, the APPG Blockchain is concerned with building a roadmap to understand the practical steps for both scaling the upsides and addressing the downsides of blockchain. The group will prioritise key use cases to explore and, through each Evidence Meeting, aims to generate pragmatic solutions (policy, regulation, industry practice and infrastructure development) with clearly defined steps for how success can be achieved.
Given that financial services is a major sector of the UK economy, much of the government’s approach towards blockchain has been to assess and promote its use in FinTech:
In March 2018, the Chancellor of the Exchequer announced the launch of the Crypto-Assets Task Force. It consists of individuals from the Treasury, the Bank of England, and the FCA. The task force will develop industry standards for FinTech and support innovation in the industry. In October 2018, the task force published a report setting out the UK’s approach to crypto-assets and distributed ledger technology in financial services. It states that the authorities will continue to monitor market developments and work with international counterparts to consider appropriate domestic and international responses.
Meanwhile, Parliament has been assessing the state of domestic crypto-asset regulation. The UK House of Commons Treasury Committee’s Report on crypto-assets (September 2018) criticises the current UK regulatory framework as inadequate for governing crypto-assets and recommends that they are brought within the scope of the FCA. The report argues that proportionate regulation could see the UK as well placed to become a global centre for crypto-assets.
The FCA has also implemented policies to promote blockchain innovation in the UK. It announced, along with eleven other financial regulators and related organisations, the creation of the Global Financial Innovation Network (GFIN) (August 2018). The network will work towards providing better ways for FinTech firms to interact with regulators.
The FCA also launched a Consultation Paper, CP19/3 (January 2019), which sets out details on where different types of crypto-assets may fall in the regulatory perimeter. The aim is for concerned firms to have a better understanding of whether they need to be authorised and can ensure they are compliant and have appropriate consumer safeguards in place. The consultation period lasted until Friday 5 April 2019.
Following this consultation period, the FCA analysed and considered all responses before publishing its final Guidance on Crypto-assets (a) in July 2019. Based on responses to the January Consultation, the FCA is proceeding with drafting changes to make the distinctions between categories of crypto-assets clearer. The most important distinction is whether tokens fall inside, or out of, regulation. The FCA made changes to the Guidance and repositioned the crypto-asset taxonomy to make the category of unregulated tokens clearer. They will separated e-money tokens from the utility tokens and security tokens category. This creates a specific regulated e-money token category and an unregulated category that includes utility tokens. The regulatory treatment of crypto-assets will not change as a result of this repositioning.
Beyond regulatory action, the UK has explored the use of blockchain technology across a number of policy areas in the public sector:
Department for Work and Pensions’ POC for welfare payments (June 2016): The Department tested the use of blockchain to implement social welfare payments distribution. With the system designed by GovCoin Systems Limited, claimants used an app on their phones through which they received and spent their benefit payments. With their consent, their transactions were recorded on a distributed ledger to support their financial management.
Department for Environment, Food and Rural Affairs’ POC on traceability of food throughout the supply chain (March 2018): The Department has been assessing how blockchain technology could improve data transparency and efficiency for suppliers, processors and consumers in the food industry, improving food safety and animal welfare.
HMRC’s POC to coordinate interventions at the border (September 2018): HMRC is conducting tests on the use of a private permissioned blockchain at the UK border to help organisations coordinate activities and share information during customs processes.
HM Land Registry’s POC for digital transfer of property (May 2019): HM Land Registry aims to become the world’s leading land registry for speed, simplicity and an open approach to data. Through its Digital Street research project, the non-ministerial department is building a prototype, using the Corda platform, that enables a digital transfer of a property, and automatically updates the Land Register.