In a bid to become a global crypto hub, the United Kingdom is taking steps to deploy blockchain technology to its traditional financial markets, such as trading, settlement of stocks and bonds.
According to Gwyneth Nurse, the Director General for financial services, at the annual IDX Derivatives conference in London yesterday, the integration of blockchain is a way to refine and bolster the UK’s financial markets, using 21st century technology.
“Britain will launch a financial market infrastructure “sandbox” next year for testing DLT projects under the control of regulators.”
“The government may also want to test how trading and settlement might be brought together. A sandbox will allow to test new regulatory best practices and make permanent changes to ensure market users benefit.”
What this means
In the United Kingdom’s financial market, trading stocks, bonds, and other assets require three processes: trading, clearing, and settlement.
But, with the use of distributed ledger technology (DLT) – cryptoassets, those tedious processes would be cut short, allowing for the issuance of financial instruments such as bonds or stocks in a matter of hours as against days or weeks.
According to Nurse, the United Kingdom plans to build a “sandbox” for testing DLT initiatives inside its financial market infrastructure next year.
A sandbox is a paradigm pioneered by the United Kingdom authorities. It is used as a testing environment for evolving projects that include real customers.
Later this year, a new financial services bill which will include the ‘sandbox’ and regulations for stablecoins will be submitted to the United Kingdom parliament.
Industry experts have said that to leverage various advantages of blockchain technology within the market infrastructure, a proper digital currency is needed.
In this connection, Nurse disclosed that the Ministry of Finance and the Bank of England are exploring the possibility of a digital version of the pound and would have further public consultations later in the year.
However, she added that unlike a Central Bank Digital Currency (CBDC), for the government to deploy a digital pound, it would take time till the second half of the next decade.
It is now becoming familiar to see major world governments and authorities, after seasons of harsh policies, now coming to terms with the blockchain technology.
Last month, the UK’s Financial Conduct Authority (FCA) warned consumers about the risks of investing in cryptocurrencies. In its advisory, the watchdog raised concerns about some social media posts promoting crypto assets and non-fungible tokens.
In a sharp turn of events, barely a month later, a top official of the giant country is coming out to announce plans to fully embrace and integrate the innovative technology in its traditional markets.
The scenario can be likened to what is playing out in Nigeria. The country’s apex bank (CBN) placed a ban on all forms of crypto transactions in February 2021. And, in April 2022, the CBN fined six commercial banks to a tune of billions of naira for engaging in crypto transactions.
However, later in May, the Nigerian Securities and Exchanges Commission(SEC) released a regulatory framework that recognises crypto assets and its players in the Nigerian financial markets.
These developments underscore the inevitability of blockchain technology.
According to a ‘Crypto Pulse’ survey by Bitstamp published in April, the crypto space is on track to take over financial markets in the next decade.
World authorities are also bracing up for this shift. According to Ashley Alder, the chairperson of International Organisation of Securities Commissions, digital currencies such as Bitcoin are one of the three main areas global authorities are now focused on.
In this light, cryptocurrency could get its own global official regulatory body next year.