We're delighted to announce that we were successful in our bid achieve funding from Innovate UK to support our project titled,
"Unlocking the potential of cryptoassets to enable ease of regulation and position the UK as the home of financial service digitisation and innovation".
If you are interested in how crytoassets could form a foundational part of future financial service delivery in the UK and Europe in general, or already believe in the technology and want to understand better how it can become more pervasive, then this work will certainly be relevant.
For some time the unique properties of cryptoassets have promised solutions to a variety of problems in financial markets. Properties such as fractional ownership and decentralised settlement which could offer the possibility of sweeping, positive changes in the delivery of services within the wider financial ecosystem.
Last April, the government’s UK Fintech - State of the Nation report, reiterated its position in support of the use of cryptoassets in the delivery of financial services, and several key policy movements have since been made by the Financial Conduct Authority (FCA) and others. The seminal FCA Policy Statement, PS19/22: Guidance on Cryptoassets was one such example. In short, the government recognises the value of distributed ledger technology and cryptoassets, and would like to see the UK at the forefront of innovation in this area.
Commonly referenced aspirations in favour of using cryptoassets cite better access to financial services, more robust infrastructure, and broader adoption as key benefits of digitisation. However the past few years have shown that, when compared to the existing financial services ecosystem, the opposite would appear to be the case.
Specifically we see two parallel ecosystems forming. The traditional regulated ecosystem, with cumbersome but effective interoperation as a truly global market, and another highly fragmented set of competing crypto ecosystems with minimal adoption and almost no regulation.
In response the FCA identified three major harms that need to be addressed:
Addressing these would encourage future beneficial innovation in the space. To support this, regulators and associated legislation must establish frameworks to help ensure financial services can be appropriately regulated and delivered in a way that minimises those harms.
For those frameworks to be effective it must be possible for incumbent service providers as well as new innovators to easily identify and achieve the authorisations needed to meet their obligations.
However, cryptoasset technologies have two serious limitations. First, they conflate ownership and custody, which means any attempt to achieve authorisation is extremely difficult. Clearly delineating the responsibilities a service requires authorisation for is simply not possible in any meanginful sense. Second, existing technologies are extremely slow, by several orders of magnitude, meaning purported benefits can only be realised in very niche settings. Simply put, the technology doesn't match the aspirations for it.
As a service provider wishing to seek FCA authorisation as a Multilateral Trading Facility (MTF), our project will develop new technology that allows separation of ownership from custody on a public blockchain while also anchoring off-chain activities to that chain in such a way so as to ensure we are not constrained by the chain’s performance. This work will be a game changer for financial service companies wishing to offer high performance, regulated businesses that will drive institutional adoption of crypto.
Watch this space!