HM Treasury, the U.K. government’s economic and finance ministry, intends to apply anti-money laundering regulation to digital currency exchanges in the U.K. as part of a plan to promote the legitimate use of digital currency. The goal, according to a newly-released 28-page document, is to support innovation and prevent criminal use.
The new document comes in response to a public call for input published in November on developing digital currency regulations. That call generated 120 responses from digital currency developers, businesses providing digital currency related services, banks, payment scheme providers, academics, consultants, and other government agencies.
The document summarizes the submissions and outlines the government’s next steps. It discusses the benefits, risks, and barriers to digital currency businesses, and options for government involvement in supporting digital currency.
Government supports digital currency
“The government considers that digital currencies represent an interesting development in payments technology, with distributed, peer-to-peer networks and the use of cryptographic techniques making possible the efficient and secure transfer of digital currency funds between users,” the document states. “The government notes that the potential advantages are clearest for purposes such as micro-payments and cross-border transactions.”
The government will look at how to ensure that law enforcement agencies have the skills, tools and legislation needed to identify and prosecute criminal activity relating to digital currencies. It wants to be able to seize and confiscate digital currency funds where transactions are for criminal purposes.
Part of the plan going forward is to work with the British Standards Institution (BSI) and the digital currency industry to develop voluntary standards for consumer protection.
Research initiative to begin
A new research initiative will bring together the Research Councils, Alan Turing Institute, and Digital Catapult with industry to address opportunities and challenges for digital currency technology. The government will increase research funding by £10 million.
While there are barriers to digital currencies achieving widespread use in their current form, the government notes the “distributed ledger” technology that underpins digital currencies has significant promise in payments technology. It wishes to foster a supportive environment for legitimate businesses so the U.K. can realize some of the benefits of digital currencies. It also wishes to discourage illegal activity. At this stage, the government’s goals are as follows:
- To provide clarity and certainty on the application of existing legislation and regulation for users, businesses and other parties dealing with digital currencies.
- To limit opportunities for criminals or terrorists to use digital currencies for illicit activities, and to support the effective identification and prosecution of illicit activity.
- To create the best environment for legitimate digital currency entrepreneurs to flourish. Such an environment includes supporting the provision of banking and other financial and professional services to legitimate digital currency firms.
- To support the research, development and application of new technology, to promote competition and innovation in payment systems, financial services, and other relevant sectors.
- To support monetary and financial stability in the U.K., by monitoring the usage of digital currencies in the U.K. and assessing the risks posed.
Focus on decentralized schemes
The earlier call for information defined a digital currency scheme as one which incorporates both a decentralized payment system and a related currency. It noted that digital currency systems can achieve consensus through a variety of means, including proof-of-work and trust-based consensus. The document focused on decentralized digital schemes because of interest in the potential benefits of the distributed ledger technology.
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