Since the European Parliament adopted a proposal for the European Commission to oversee a new task force on virtual currencies (VCs) last spring, the work of big banks and others to advance blockchain and distributed ledger technology (DLT) has continued apace. Accordingly, as the Brussels machinery gets back into gear following the summer hiatus, the activities of the new DLT Task Force will likely expand and accelerate, presenting opportunities for informed stakeholders to contribute to its understanding of the underlying technologies’ full potential.
The European Parliament proposal calling for the establishment of the DLT Task Force is founded on the premise that VCs and DLT have the potential to contribute positively to consumer welfare and economic development in a variety of ways. Its author, European Parliament Member Jakob von Weizsäcker, emphasizes that the aim of the proposal is to avoid regulating too quickly and stifling innovation as a result and instead to allow the new Task Force to develop expertise in the underlying technologies and closely monitor developments.
Stakeholders have generally welcomed the proposal for its supportive approach of this dynamic environment, and the fact that it does not imply the establishment of a new regulator as such. But Weizsäcker has also noted that “a smart regulatory regime based on analytical excellence and proportionality must not be confused with light-touch regulation. Rapid and forceful regulatory measures need to be part of the tool kit in order to address risks before they become systemic if and when appropriate.” Therefore, the time to engage with the Task Force is now.
Recent news reports have touted the efforts of UBS, Deutsche Bank, Santander, BNY Mellon and ICAP to develop a new form of digital cash that could become an industry standard to clear and settle financial trades over blockchain, as well as the creation by the R3 consortium and trial application by more than a dozen big banks of two DLT-based prototypes to address the challenges inherent in trade finance. However, the Task Force will benefit from stakeholders providing the broadest possible view of DLT’s potential applications, including the creation of a record of events that may assist compliance efforts in import and export supply chains or other trade-related applications. Experience in engaging constructively with EU officials at these early stages in the development of regulation will be an important asset for stakeholders.
For its part, the U.K. Financial Conduct Authority (FCA), through its Project Innovate, has been offering regulatory compliance advice to companies trying to develop DLT-based products. The initiative includes a “regulatory sandbox” in which companies are able to test products with temporary FCA authorization. As a result, the FCA recently announced it is considering approving the DLT-based, consumer-facing products of a number of firms. Experience drawn from this context should also be instructive when participating in upcoming EU-level efforts.
Therefore, realizing the significant promise of blockchain and DLT in the EU context requires as of now that stakeholders mobilize quickly to define and implement their policy strategy for engaging with the new DLT Task Force.