UK watchdog in no rush to regulate blockchain technology

LONDON, Feb 23 (Reuters) - Britain’s financial watchdog won’t for now directly regulate blockchain, the technology that underpins the bitcoin virtual currency, becoming the latest supervisor to hold fire as policymakers eye the sector for growth.

Proponents of blockchain or distributed ledger technology argue it has the power to radically innovate in areas of financial services such as payments.

Christopher Woolard, director of strategy and competition at the Financial Conduct Authority (FCA), said many regulatory and consumer issues need to be discussed as the technology evolves, such as who controls access to it and data security.

“The FCA continues to monitor the development of this technology but is yet to take a stance until its application is clearer,” Woolard said in a speech published on Tuesday.

Blockchain technology builds up a massive ledger of transactions that is verified and shared by a global network of computers.

“The current development of distributed ledger technology has the potential to revolutionise financial services; whether it is the panacea of all ills in the financial world is yet to be seen,” Woolard said.

U.S. start up Digital Asset Holdings has won heavyweight backing from JP Morgan, Deutsche Boerse, Accenture and others to develop the use of blockchain in financial services such as in settling trades.

Lawyers say this will raise the need for new rules for banks and exchanges to show regulators that adequate controls are in place to mitigate risks to the wider financial system.

Last month the European Commission, which has powers to propose pan-European Union regulation in the financial sector, said it will monitor rather than regulate blockchain.

Woolard’s speech was part of a week of financial technology (fintech) events hosted by Britain’s finance ministry. The government wants to encourage start up companies to innovate in financial services.

Yet lawyers say there is a natural tension between the government, which wants the fintech sector to grow, and the job of regulators to write rules.

Woolard said part of the FCA’s remit is to promote competition and it wants start ups to meet with the watchdog early on to ensure consumer protection has been properly considered.

The FCA is helping several companies obtain authorisation, such as WealthKernel, which wants to provide automated wealth management advice to institutional customers, he said.

Woolard said the FCA had just authorised CUVVA, which provides car insurance for periods as short as a few hours so people can borrow a friend’s vehicle. (Editing by David Holmes)