On 15 December 2017, the Financial Conduct Authority (FCA) published the Feedback Statement (FS) to its April 2017 Discussion Paper (DP) DP17/03 on Distributed Ledger Technology (DLT).

In its introduction to the FS, the FCA articulates its position on DLT as follows: “Our aim is to be alive to current and potential developments involving DLT, to keep pace with them, and to strike a proportionate regulatory balance between the risks and opportunities they present. We see regulation as an enabler of positive innovation based on new technologies as well as a means of containing undue risk. Our regulatory philosophy (subject to any risks to our objectives) is to be ‘technology-neutral’.”

The FS covers the following areas:

o   Operational risk, including outsourcing and network security;

o   Digital currency, including derivatives and Initial Coin Offerings;

o   Digital asset trading and smart contracts;

o   Regulatory reporting;

o   Financial crime; and

o   The General Data Protection Regulation.

The FCA says that the DP was positively received, with particular support expressed for the FCA’s ‘technology-neutral’ position.

Feedback received to the DP also supported the view that the FCA’s current rules are sufficiently flexible to accommodate various technology, including DLT. Rules were said to present ‘no substantial barriers’ to adopting DLT. Although, some respondents doubted the compatibility of permissionless networks with the regulatory regime.

Some 47 responses were received to the DP, ranging from regulated firms, trade associations, technology providers, law firms and consultancies.

As next steps, the FCA will continue to monitor DLT-related market developments and engage both internationally and nationally to help shape the regulatory response.

Key contacts

Nick Pantlin
Nick Pantlin
Partner, London
+44 20 7466 2570
Cat Dankos
Cat Dankos
Consultant, London
+44 20 7466 7494