EU lawmakers to hold off from regulating blockchain for now

LONDON (Reuters) - The European Union should hold off for now from regulating blockchain, the technology that underpins bitcoin, an EU parliamentary committee agreed on Tuesday in the latest example of a softly-softly approach by authorities toward financial services.

An European Union flag flutters outside the EU Commission headquarters in Brussels, Belgium, January 12, 2016. REUTERS/Francois Lenoir

“We don’t want pre-emptive regulation, but we do want precautionary monitoring,” Jakob von Weizsaecker, a German center-left member of the European Parliament, told Reuters.

The parliament’s economic affairs committee backed his report on virtual currencies such as bitcoin and blockchain, also known as distributed ledger technology.

Regulators and policymakers are keen not to stifle innovation and risk losing out in a global race to exploit such financial technology, or fintech.

Blockchain’s proponents say it will “disrupt” finance by slashing the cost of payment transactions and settling stock trades.

“One reason why regulating now in detail would be difficult is that we don’t know yet what the most important use of blockchain might be,” von Weizsaecker said.

His report is non-binding but it will help to shape likely draft EU legislation later on. It asks the European Commission to set up a task force to monitor blockchain.

The task force should make recommendations for any necessary legislation though it should not be heavy-handed as blockchain can offer significant opportunities to consumers and economic growth, the report said.

Christopher Giancarlo, a member of the U.S. Commodity Futures Trading Commission, said last month that regulators should “do no harm” and allow blockchain to flourish.

Britain’s Financial Conduct Authority will allow testing of fintech innovations on consumers from May in a controlled environment, or “sandbox”, before considering new rules.

But SWIFT, the global electronic messaging system used by 11,000 banks, said this month that blockchain was not mature enough to fulfill the requirements of the financial community, though others see it as only a matter of time.

“Some of the technology considered new-fangled, untested or unproven today, including distributed ledger technology, will become mainstream within the next ten years,” Wall Street veteran and head of a blockchain start-up, Blythe Masters, said last week in London.

Uncertainty over regulation was hindering the development of blockchain, Masters added.

Vincent Mercer, a consultant at Charles Russell Speechlys, said there was a significant risk that regulators will upset blockchain’s potential by regulating too fast and without coordination.

The European Central Bank said on Monday it was experimenting with blockchain, and the Bank of England is also looking at what it means for updating its own payments system.

Andrew Hauser, BoE executive director for payments, said last week the authorities had to keep abreast of blockchain.

“Central banks can’t afford to be Ubered,” Hauser joked, referring to the ride-hailing app shaking up the taxi sector.

Reporting by Huw Jones. Editing by Louise Heavens and Jane Merriman