UK needs lighter KYC requirements for crypto to surpass US in Web3 – Think tank
UK needs lighter KYC requirements for crypto to surpass US in Web3 - Think tank
Unlocking the Potential: How the UK can Embrace the Blockchain Industry
The blockchain industry holds immense potential for economic growth and technological advancement. As regulatory uncertainties in the United States push Web3 firms to seek new opportunities, the United Kingdom has a chance to emerge as a global leader in this transformative field. In a recent report published by the influential conservative think tank Policy Exchange, the UK government was presented with ten proposals to improve Web3 regulation, which could allow the country to attract and retain blockchain innovators.
One of the key recommendations in the report is to limit the liabilities of individuals who hold tokens in a decentralized autonomous organization (DAO). In the US, a recent ruling has made any American individual who owns or previously owned tokens in a DAO liable for the organization’s legal violations. This proposal in the UK report aims to provide clarity and protection to token holders, encouraging participation in the DAO ecosystem without the fear of personal liability.
Another notable suggestion by the think tank is for the Financial Conduct Authority (FCA), the principal UK financial regulator, to adopt a more flexible approach to Know Your Customer (KYC) requirements. By allowing for the use of “alternative and innovative techniques” such as digital identities and blockchain analytics tools, the regulatory burden on businesses can be reduced while maintaining security and compliance standards. This approach recognizes the potential of blockchain technology to streamline identity verification processes and enhance security.
To foster innovation and ensure a supportive regulatory environment, the report emphasizes the importance of avoiding unnecessary regulations on self-hosted wallets and proof-of-stake services. Self-hosted wallets are crucial for individuals to maintain control over their digital assets, while proof-of-stake services contribute to the security and stability of blockchain networks. Overregulation in these areas may hinder the growth of the blockchain industry and stifle innovation.
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The think tank also suggests allowing private stablecoin issuers to place stablecoin reserves in the Bank of England. This proposal recognizes the increasing prevalence of stablecoins in the digital economy and aims to instill confidence by backing these tokens with reserve assets held by a trusted institution. Furthermore, the creation of a “tax wrapper” for crypto exchanges can provide clarity and simplify the tax obligations for individuals and businesses engaging in cryptocurrency transactions.
In order to facilitate experimentation and research in emerging technologies, the report recommends the creation of a new sandbox under the Department for Science, Innovation, and Technology. This sandbox would serve as a controlled environment for companies and developers to test and refine their blockchain-based solutions, enabling them to navigate regulatory complexities while driving economic growth.
While the UK has recently taken a stringent approach to the digital assets industry, such as considering a ban on cold calls promoting crypto investments, embracing the recommendations put forth by the Policy Exchange can establish the UK as a welcoming and vibrant hub for blockchain innovation. By striking the right balance between regulation and innovation, the UK can attract Web3 firms, foster technological advancement, and create a competitive edge in the global blockchain industry.
To summarize the key proposals mentioned in the report, refer to the table below:
|Limiting liabilities of DAO token holders||To protect individuals from personal liability for DAO violations, encouraging participation|
|Flexible KYC using alternative techniques||Allowing the use of innovative techniques like digital identities and blockchain analytics tools|
|Avoiding overregulation of self-hosted wallets||Recognizing the importance of self-hosted wallets to maintain control over digital assets|
|Supporting proof-of-stake services||Avoiding unnecessary regulations to foster security and stability of blockchain networks|
|Allowing stablecoin reserves in Bank of England||Backing stablecoins with reserves held by a trusted institution, increasing confidence|
|Creating a tax wrapper for crypto exchanges||Simplifying tax obligations for individuals and businesses engaged in cryptocurrency transactions|
|Establishing a sandbox for emerging technologies||Creating a controlled environment for companies to test and refine blockchain-based solutions|
By embracing these proposals and providing a regulatory framework that promotes innovation and confidence, the UK can position itself at the forefront of the blockchain revolution, unlocking the economic and technological potential that this transformative technology offers.