The UK’s financial industry may be on the cusp of a major transformation, as trade association UK Finance has expressed support for the integration of blockchain technology in payments and settlements. The organization believes that blockchain, through its distributed ledger capabilities, has the potential to significantly enhance transaction efficiency, offering improvements across a sector that already processes a staggering $14.5 trillion annually.
Blockchain’s Rise in Financial and Private Sectors
The popularity of blockchain technology has been growing steadily, with its adoption extending across various private sector industries. In addition to its increasing role in payment systems for goods and services, blockchain is gaining traction in sectors such as online gaming. For instance, online casinos like Mega Dice are using blockchain to handle bets, deposits, and withdrawals in cryptocurrency, offering improved security, faster transactions, and broader access to international players. This shift towards digital assets highlights the versatility and growing importance of blockchain technology in a variety of use cases.
The Regulated Liability Network (RLN) Experiment
UK Finance’s interest in blockchain technology stems from the successful conclusion of the experimental phase of its own blockchain initiative, the Regulated Liability Network (RLN). The RLN is designed to support asset tokenization and the implementation of central bank digital currencies (CBDCs), offering a flexible and efficient solution for payments and settlements.
According to UK Finance, the RLN has proven itself effective across multiple financial use cases. The network is capable of handling wholesale CBDCs, electronic money, and other digital assets, while enabling authorized entities to oversee transaction records, manage transfers, and settle payments securely. Additionally, the RLN includes functions such as locking and releasing funds, programming payments, and providing a common point of access for institutions. This access facilitates communication between public authorities and key private sector players, encouraging collaboration and streamlining operations.
Collaboration with Regulators and Private Sector Commitment
One of the key aspects of blockchain’s potential success in the UK, according to UK Finance, lies in the partnership between the private sector and regulators. The managing director of payments at UK Finance has noted that businesses are eager to invest in the future of commercial bank money, and collaboration with regulators is seen as a vital step toward achieving this goal. This sentiment reflects the broader need for a balanced regulatory framework that promotes innovation while ensuring consumer protection.
CryptoUK’s Criticism of the FCA’s Regulatory Approach
While UK Finance is advocating for blockchain integration, other industry bodies have expressed concerns about the regulatory environment surrounding digital assets in the UK. CryptoUK, a self-regulatory trade association for the cryptocurrency industry, has criticized the Financial Conduct Authority (FCA) for its stringent approach to regulating crypto businesses. According to CryptoUK, the FCA’s complex registration process has deterred many crypto firms from operating in the country, creating a challenging environment for growth.
Data from the FCA’s registration efforts show that in the past 12 months, the agency has approved only 13% of the 35 applications it received, with the majority of the applications either withdrawn or rejected. Since the beginning of 2020, the approval rate for crypto applications has remained low, leading to concerns about the regulator’s stance on cryptocurrencies such as Bitcoin and Ether.
Institutional Support for Blockchain in the UK
Despite the challenges posed by regulatory hurdles, financial institutions that participated in the RLN’s experimental phase have expressed support for the platform. Companies involved, including major banks such as Lloyds, Barclays, HSBC, and Standard Chartered, as well as payment giants Visa and Mastercard, have highlighted the RLN’s potential to reduce fraud, lower the costs associated with failed payments, and simplify processes like home purchases.
In addition to the RLN initiative, efforts to further explore blockchain’s role in the UK’s financial ecosystem are ongoing. Recently, Barclays proposed the potential use cases for a digital pound, identifying key areas where it could be applied, such as merchant payments, personal transfers, and enhanced transaction security. The proposal emphasized that a digital pound could help mitigate the risk of payment disruptions by requiring digital and commercial banks to operate in similar ways.
As blockchain continues to gain traction within the UK’s financial industry, the success of initiatives like the RLN could pave the way for broader adoption.