UK Gov should Regulate Bitcoin Wallets and create its own digital currency.
The UK government should apply the same regulation and identification requirements to bitcoin wallets as it does to bank accounts, Accenture has suggested.
Documents obtained by CoinDesk through a Freedom of Information request show the multinational management consulting company’s response to the Treasury’s call for information on digital currencies.
Dated December 2014, the company takes a very positive stance on cryptocurrencies, such as bitcoin, highlighting their potential.
“Digital currencies are at an early stage of development and usage, but they are here to stay and the technology has the potential to reinvent many aspects of financial services.”
However, the document also recognises the risks associated with these currencies, including price volatility, lack of consumer protection and the potential loss of funds, for example by forgetting a private key, or through a fraudster gaining access.
Accenture believes bitcoin’s biggest problem currently is its association with, and use in, money laundering. It claims the identification requirements applied to bank accounts should also be applied to bitcoin wallets.
“In the same way that governments require identifiable bank accounts (through named accounts and know-your-customer checks), a requirement for named, identifiable digital currency wallets would be a core component of a safe, legitimate digital currency economy,” the document reads.
It goes on to suggest a centralised authority may need to be established to “supervise and monitor the use of digital currency wallets”.
Accenture stresses repeatedly in the document that regulation should be limited to digital currency wallets, rather than applied to digital currencies more broadly.
Any regulation that is created, needs to be “reasonable and proportionate”, with clear guidance on the rules and responsibilities for the participants of digital currency wallet schemes.
The submission goes on to say:
“Heavy regulation (or application of historical frameworks) could stifle innovation – to avoid this, an agile regulatory regime should be set up to be flexible and develop specifically for digital currencies as the digital currency economy grows.”
In the 16-page document, Accenture suggests the government take limited actions, which could include:
- Regulating so that digital currency wallets can be identified uniquely and recognised eg through KYC checks
- Recognising and authorising organisations (Authorised Digital Currency Wallet Institutions – eg banks) that can provide identity checks and verification services to enable identifiable digital currency wallets
- Providing a framework of clear rules and responsibilities for the participants of the digital currency wallet market on how to place controls on the digital currency wallets to help prevent financial crimes (AML and sanctions).
The document claims that the above measures would “catalyse the development of the safe, legitimate digital currency economy”.
The black economy
The submission notes that, under the proposal, bitcoin users would still be able to open and operate anonymous digital currency wallets, but these would fall outside of the “legitimate economy” and reside in the “black economy”.
Because the blockchain acts as a ledger, recording all bitcoin transactions, even those that occur in the black economy will be noted.
“Not only will this help with law enforcement and forensic analysis of anonymous transactions, it will be difficult (if not impossible) for digital currency used in the digital currency black economy to be laundered undetected back into the legitimate digital currency economy,” Accenture said.
Accenture proposes the creation of an Authorised Digital Currency Wallet Institutions list, similar to the list of Authorised Payment Institutions.
These institutions would be authorised and regulated by a central authority, such as the FCA and they would be required to:
- Issue digital currency wallets and identify the digital currency wallet owner through KYC checks
- Maintain a compliance status of each digital currency wallet
- Monitor digital currency wallet usage to check payments are between other identifiable digital currency wallets
- Monitor transactions for adherence to sanctions lists
- Be able to freeze digital currency wallets where they are being used for suspicious activity.
Encouraging bank participation
Accenture believes that, without Government intervention, UK banks are not likely to provide digital currency businesses with support, which will further hamper payments innovation and drive cryptocurrency companies abroad.
The document claims banks are “very supportive” of fintech startups, but are just reluctant to be exposed to fines from UK and international regulators for AML and sanctions breaches. It adds:
“The potential upside from taking on startups as customers with possible AML exposures pales into insignificance compared to the fines they risk.”
Experimenting with blockchain tech
In an interview with CoinDesk, an Accenture spokesperson explained why the company had decided to participate in the government’s call for information.
She said cryptocurrencies are important for the firm’s financial services clients, so Accenture has developed points of view on this area. The spokesperson added:
“We are currently experimenting with blockchain technologies in our Technology Labs to test use cases relevant to our clients’ interests. The consultation was an opportunity to share our thought leadership with the government and contribute to the debate.”
Last week, CoinDesk revealed Citi’s response to the call for information, which suggested the UK government should create its own digital currency.