Regulators are not looking to enforce regulation on blockchain and cryptocurrency technology but are instead trying to regulate the outcome, according to financial expert Peter Smith.
Coin Rivet recently spoke to Mr Smith at the London Blockchain Week conference.
Smith has a wealth of experience in UK financial services and currently serves as an independent industry consultant at FinTechReguLab, as well as being the non-executive director of Seneca Investment Managers.
Previously, Smith has sat on a variety of UK regulatory steering committees including the Financial Conduct Authority (FCA) Industry Sandbox consultation.
While speaking with Smith, he revealed some enlightening insights into current regulatory frameworks.
Regulating the outcome
Smith believes regulators are “standing back to see the technology mature,” because at the moment, “they’re regulating the outcome and not the tech.”
He also notes how “regulatory drag” is causing regulators to focus on the “consumer end.”
Regulatory drag refers to how regulation will always be behind the technology that is being “invented, developed, or moved forward.”
Since the scope of focus is not aimed at the technology, Smith believes there is a “stream of work being done at the moment, about whether the regulator should have an education strand.”
He makes reference to pension scam adverts and other media that promotes awareness of scams, and believes it’s important for regulators to bring unbiased awareness to the average person.
“There’s some good stuff out there, and some not so good, so just be wary,” Smith adds.
“So, I think they’re going to be looking at doing more of that, than actually building regulation around the technology.”
Regulating the tech is difficult
Smith believes this is the direction regulation is heading because regulating the technology itself is “difficult.”
He notes if the coins and currencies are not being minted in the UK, or in UK jurisdiction, “the FCA can’t do anything about it, nor can the Bank of England, really.”
Smith also discussed how working within the sandbox alongside regulators is useful in limiting liability for tech companies.
To apply to join the sandbox, you need to fulfill certain criteria. The criteria includes a solid business plan with a proposition “virtually” ready to hit the markets.
You will also need to have tested the product on customers, but Smith notes, “if you test it on live customers then you still have liability if things go wrong or the product doesn’t work.”
“But your liability is limited under that, than if you were outside the sandbox under normal regulation you’d have unlimited liability which could wipe you out.”
Smith also commented on how the lack of public awareness about cryptocurrencies and blockchain is hindering its progress, which is something Coin Rivet has reported on before.