Chancellor George Osborne today announced his plans intended “to cement Britain’s position as the centre of global finance and global technology.”
His comments were made at the launch event of the new UK trade body for finance and technology, 'Innovate Finance'. A government review will now analyse the benefits and threats of digital currencies and the role that cryptocurrencies such as ‘Bitcoin’ could play in UK business.
Separately today, demonstrating the significance of this sector, UKTI published “Landscaping UK FinTech”, a report containing independent research by Ernst & Young that estimates that the FinTech market in payments, platforms, software and data analytics alone is worth £20bn to the UK annually.
Against this backdrop, George Osborne stated: “recognising that the world of finance as we know it is changing in front of our eyes, I can today announce that the Government will start a major programme of work exploring the potential of virtual currencies and digital money.”
Osborne acknowledged in his speech that ‘alternative’ payment systems are becoming ever more popular as they are quick and convenient for today’s increasingly tech-savvy consumers. However, he also highlighted the importance of being aware of the risks that accompany the new technology.
As we have previously written, the Bitcoin market has been volatile and security issues relating to virtual currencies appear yet to be fully appreciated or adequately addressed. Earlier this year, after Mt Gox (one of the top three Bitcoin exchanges) shut down, reports suggested that that nearly 744,000 Bitcoins (approximately £210m) had been stolen due to a security loophole.
The government review will look into whether regulation of the sector is required. Certain countries (Iceland and Vietnam) have banned the use of virtual currencies altogether. There are a host of interesting issues to be resolved, not least the thorny issue of defining what constitutes a ‘cryptocurrency’ in the first place, and also the broader question of whether regulation of a ‘virtual’ currency is inherently futile (as monitoring and enforcement would be at best technologically challenging and at worst impossible). It will be interesting to see how the UK government’s approach evolves in due course, when the new review concludes.