The economic and digital revolutions have significantly influenced the banking business today. Digital innovation has been used for financial accumulation, transaction, and monetary challenges. Blockchain technology, including bitcoin, is recognized as that specific technology. With its application, this invention promises to cover any financial management and transaction vacuum in the industry. 

This blog will focus on blockchain uses and innovation and its influence on the UK banking and finance sector. Let’s get started…

The United Kingdom & Blockchain Technology 

According to the study, a digital crypto UK is virtual money that employs encryption to secure financial transactions. It also highlighted that when the UK government opted to adopt crypto governance, there was no central governing body, instead opting for a decentralized method to record all financial transactions and the corresponding units. 

London has already grabbed the lead in incorporating bitcoin and blockchain tech in its banking business, adopting friendlier regulatory postures than its counterparts in New York. 

The UK government has announced its proposal to regulate digital crypto in the UK and spend more money to create more prospects for banks to develop their connections in the future with the shift in the country’s financial regions.

Here’s a summary: 

• The government announced a goal to make the United Kingdom a worldwide crypto asset technology hub.
• Stablecoins will be recognized as a viable form of payment by the UK government as part of broader aspirations to make Britain a worldwide center for crypto asset technology and investment.
• The announcement is one of many efforts to make the UK a crypto asset technology and investment hub.

Blockchain Technology & Investment 

After the UK government unveiled steps to recognize stablecoins as a viable form of payment, blockchain technology in the UK is expected to boost significantly. Stablecoins will be regulated under the plans, paving the path for them to be used as a recognized form of payment in the UK.

Other recommended approaches include:

• Introducing legislation for a “financial market infrastructure sandbox,” which the government thinks would aid company innovation.
• A two-day FCA-led event called ‘CryptoSprint.’
• An NFT, in partnership with the Royal Mint A Blockchain Engagement Group, aiming at collaborating with the industry more closely.

These measures are part of a package for ensuring that the UK financial sector continues to attract investment and employment while broadening consumer choice and remaining on the leading edge of technology.

Other steps in this project include investigating ways to improve the competitiveness of the UK tax system to stimulate the future development of Blockchains in the UK.

In addition, the government will examine how Decentralized Finance (DeFi) loans are taxed. (DeFi loans are transactions in which Blockchain holders lend their assets in exchange for a return). Furthermore, it is consulting on broadening the scope of the Investment Manager Exemption to include Blockchains.

UK Authorities’ Actions

Since the release of the Cryptoassets Taskforce’s 2018 report, the government and authorities have taken several steps to address concerns and promote innovation related to crypto assets, including (but not limited to):

1. 1.Communicating Minimum Policy Expectations for Stablecoins 
   – These have been communicated through speeches and international reports, such as the Financial Stability Board’s (FSB) report on stablecoin regulation and the G7’s global stablecoin working group report, which stated that “no global stablecoin project should begin operation until the legal, regulatory, and oversight challenges and risks… are adequately addressed, through appropriate designs and by ad hoc oversight.” 
2. 2.Clarifying the Regulatory Perimeter
   – This establishes when tokens are likely to be a specified investment under the Financial Services and Markets Act 2000 and Regulated Activities Order 2001 (RAO), including those that are a financial instrument under the second Markets in Financial Instruments Directive (MiFID II) or e-money covered by the EMRs. Depending on the nature of the activity, FCA authorization or registration may be necessary.
3. 3.Implementing the Fifth Anti-Money Laundering Directive  
   – Including custodial wallet and crypto asset exchange providers in anti-money laundering (AML) and counter-terrorist financing (CTF) legislation.
4. 4.Consultation on Introducing a Larger Portion of Cryptoassets into the FCA Financial Promotions Regime 
   – If implemented, this would apply to promoting eligible crypto asset-related activities.
   The selling, marketing, and distribution of derivatives and exchange-traded notes referencing certain categories of crypto assets to retail customers are prohibited (FCA).
   The finalized regulations were to go into effect on January 6, 2021. They would limit the sale, marketing, and distribution of contracts for difference, futures, options, and exchange-traded notes referencing unregulated, transferrable crypto assets.
5. 5.Consumer Alerts Concerning Cryptocurrency Frauds 
   – In addition to giving recommendations on how customers should protect themselves, the FCA (Financial Conduct Authority) maintains a warning list of known scammers. In collaboration with Action Fraud, the FCA announced in May 2019 that the number of complaints of the crypto asset and FX investment scams had tripled in 2018/19.
6. 6.Financial Conduct Authority’s Sandbox Support for Distributed Ledger Technology-Based Services 
   – The FCA (Financial Conduct Authority) continues to promote innovative financial services enterprises through its many programs. It includes its Direct Support function, which gives companies with regulatory input, and its Regulatory Sandbox, which allows firms to test products in a live setting under FCA supervision. 
   
   DLT (Distributed Ledger Technology) has been and continues to be the most popular technology tested, particularly in the Regulatory Sandbox, with around one-third of all enterprises employing it to enable their goods and services. Payments, tokenization of financial products, Digital ID, and insurance intermediation are among the DLT-based solutions evaluated in the Sandbox.

Bottom Line

Blockchain technology is nothing short of a game changer. We are optimistic that you now have a better understanding of blockchain in the financial sector, its potential effects on the financial sector, and the steps the UK government is taking to regulate the industry. You can find more information at GJM & Co. Our financial professionals understand the global industry. They can explain Blockchain tech, its effects, and its future. 

Should you have any queries or need consultation, Schedule a Call today or write to us at info@gjmco.in.