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Experts in the UK FinTech market have warned regulators that attempting to heavily regulate digital currencies will backfire and damage the market. These comments have come after it was announced late last year that UK and EU governments are planning on cracking down on Bitcoin and other digital currencies amid fears it is being used for money laundering and tax evasion.
The plan is to bring digital currencies in line with current financial regulations. There was criticism at the time after the Treasury admitted, “There is little current evidence of them being used to launder money, though this risk is expected to grow.”
Chief Executive of the British Business Federation Authority has expressed concerns over unnecessary or inappropriate regulations could cause frustration to cryptocurrency innovators and encourage them to leave the UK and set up business elsewhere, where there is a more welcoming climate for crypto. This would be a bad move for the UK since it is globally considered as having a strong FinTech industry which would be damaged if they are seen to be squashing emerging technologies.
The Treasury is planning to regulate Bitcoin by introducing new rules which would force traders into disclosing their identities and being proactive about reporting suspicious activity. Although the Treasury is largely targeting Bitcoin specifically in these discussions around rules and regulations, it is assumed they will be catchall regulations that will apply to all cryptocurrencies.
Technology Partner at Baker Potts, Neil Foster stressed the importance to making sophisticated regulation in this area, so that each element of cryptocurrency is individually and appropriately regulated, rather than treating crypto assets as a whole as a single currency.
The Financial Conduct Authority, The Bank of England and HMRC are still working to come up with a proposal for the new rules and regulations, and the FinTech industry will be keen to scrutinize the proposal when it does come to fruition.
The current cryptocurrency market is often likened to the “wild west,” a still forming and somewhat chaotic emerging technology that is still finding its feet in the global financial market. Cryptocurrencies have great potential to transform the way we do banking, but it is a completely new way of doing things so we have to be careful applying rules and regulations made for a historic finance system to this new technology. If we’re not careful, we could see cryptocurrencies restricted and bullied into the background before it has the chance to fully flourish as a legitimate alternative to our current financial systems.