What is the current attitude of the government and of regulators to the use of blockchain technology in your jurisdiction?
Both the Government and regulators have generally been receptive to fintech and innovation and have sought to improve their understanding of, and engagement with businesses by regularly consulting with industry on proposed regulatory changes. There has been considerable discussion around the opportunities, risks and challenges that have arisen for market participants, customers and regulators. The Government’s broader commitment to facilitating growth and innovation within the technology sector has been underpinned by its relatively non-interventionist approach to the regulation of blockchain technology and regulatory and legislative developments have been made to ensure the scope of emerging services is adequately captured within the existing framework. This has included increased fintech specific regulatory guidance to assist businesses in understanding their obligations, amended legislation to bring fintech services providers within the remit of existing regimes, and the introduction of new legislation to provide greater consumer protection (discussed below).
The Government has announced plans to develop a national blockchain roadmap that will focus on a number of policy areas such as regulation, skill building, investment, and international competitiveness and collaboration. As well as this, the Government has invested in positioning Australia at the forefront of the blockchain sector, promising A$100,000 in funding for Australian companies to join Austrade’s Mission to New York’s premiere blockchain event, Consensus. The Government has previously invested A$700,000 in Australia’s Digital Transformation Agency to investigate the use of blockchain for delivering public services like government payments and $350,000 to Standards Australia to lead the development of international blockchain standards through the International Organization for Standardization.
The French government is strongly supportive of this innovation and, in particular with the “loi PACTE”, is endeavouring to establish a favourable legal and regulatory framework, which is designed to attract innovative entrepreneurs, notably through an “optional visa” approach for ICOs.
The German government has recognised the potential of the Blockchain technology and is willing to use it for a “digital transformation”. According to the German finance minister, the Blockchain technology can make a contribution to strengthen Germany as a leading technology location. As outlined above, the government has adopted a strategy for dealing with the Blockchain technology. Under the leadership of the Ministry of Finance, more than 150 experts and organisations have been consulted since spring 2019 and more than 6,000 responses have been evaluated.
The government has set itself the goal to make use of the opportunities offered by the Blockchain technology and mobilising its potential for digital transformation. According to the government, the young and innovative Blockchain community in Germany should be preserved and continue to grow and Germany should be an attractive location for the development of Blockchain applications and investments in their technology. To achieve this goal, the government stated, that it will seek to ensure that applications based on Blockchain technology are compatible with applicable law and to prevent abuse of the Blockchain (e.g. for money laundering).
The Irish Government has generally welcomed and sought to foster the development and use of blockchain technology in Ireland. For example, in its International Financial Services Strategy 2025 (IFS 2025), published in December 2018, the Irish Government outlined a number of blockchain specific proposals (including the launch of various government advisory committees and blockchain education and training programs) aimed at positioning Ireland as an EU centre of excellence for blockchain technology.
However, from a regulatory standpoint, Irish authorities have been somewhat cautious in relation to the risks associated with certain aspects of blockchain technology. For example, in December 2017 the CBI issued an alert in relation to Initial Coin Offerings (ICOs) that echoed similar warnings previously published by the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) and in February 2018 the CBI issued a consumer warning on risks of buying or investing in virtual currencies and cryptocurrencies. Similarly, the CCPC has warned consumers to 'be very careful of potential scams when it comes to cryptocurrencies'.
The Italian government and competent authorities are establishing an increasingly blockchain-friendly – and, more generally, fintech-friendly – environment; in fact, the legislative introduction of the DLT definition showed an innovative approach (see question 3).
More specifically, in 2017: (a) the BoI demonstrated its forward-looking approach by launching a fintech hub on its website to support innovation processes in the regulatory field ; and (b) Consob launched several initiatives, including detailed research programmes called “Quaderni FinTech” concerning robo-advice, blockchain and, more generally, the relationship between fintech businesses and traditional financial activities. In March 2018, the MEF established a ‘Coordination Committee’ whose purposes are to: (a) encourage the introduction of innovative services and models in the financial and insurance sectors; (b) monitor fintech developments; and (c) develop general principles applicable to fintech and propose appropriate amendments to the current legal framework .
The Japanese government has a generally positive view of the use of blockchain technology in various kinds of businesses.
For instance, in June 2019, the Japanese government published an “Action Plan of the Growth Strategy” , which discussed the importance of the use of blockchain technology, stating “AI, IoT, robots, big data, blockchain … are general purpose technology (GPT) that broadly affect all industries, similar to adoption of electric power from the 19th to 20th century and IT inroads through the end of the 20th century.”.
Communication with the Liechtenstein Financial Market Authority (Finanzmarktaufsicht, FMA) is excellent. Therefore, any new projects may be introduced in a personal meeting with the FMA. Usually a legal opinion examining the business model and the token functionality (if a token is issued) will be filed with the FMA in order to receive a preliminary evaluation. If no regulation applies, the FMA will issue a statement indicating that the intended business does not fall under its jurisdiction if it is exercised in the way presented to the FMA in the set of facts of a legal opinion.
The Dutch government and the Dutch financial regulators have, in general, a positive attitude towards blockchain technology.
The Dutch government supports the use of blockchain technology by financing research and taking part in PPPs (see question 1), and is exploring whether existing legal frameworks are sufficiently flexible, to allow companies to make use of blockchain technology opportunities, and whether these frameworks enable sufficient mitigation of the relevant risks and issues.
The Dutch government is currently exploring several specific-use cases: (i) the registration of ships (the register is managed by the government); (ii) the automation of administrative and compliance processes in relation to public grants for social use; (iii) the use of smart contracts by private parties; (iv) the tracking of waste transport under the European Waste Shipment Regulation; and (v) the government's recording and sharing of sensitive personal data under the Social Support Act 2015 (Wet maatschappelijke ondersteuning).
In addition to the Dutch government's proactive attitude, Dutch regulators are also conducting research on the impact of blockchain technology in their own individual sectors, and several reports have already been published (see for example, the report on Initial Coin Offerings ("ICOs") (see question 8).
Considering the emergence of new drafts and laws in this sphere it can be alleged that the current attitude of government is rather positive. The reality is that blockchain is becoming an integral part of Russian market. The experts of Russian IT-market note the appearance of a large number of pilot projects in the field of blockchain, so the legislative regulation is therefore especially necessary.
The Korean government views blockchain technology as part of its key economic policy goals for the 4th Industrial Revolution and has announced its plans to expand blockchain’s application in the public sector, invest in research and development of blockchain technology, and attract more blockchain professionals. In 2019, the Korean government is projected to nearly double its spending on blockchain development in certain Korean cities from 2018.
The Financial Services Commission (“FSC”) has announced its plans to create a new department “exclusively for policymaking initiatives in the nation’s blockchain industry” called the Financial Innovation Bureau. The new department will be tasked “with policy initiatives for financial innovation, such as innovating financial services using fintech or big data, and responses to new developments and challenges such as cryptocurrencies.”
The Korean government has also clarified that blockchain technology generally should be distinguished from cryptocurrency, which will be strictly regulated to restrict risky investments.
The Minister of Finance has declared in a public answer to the Swedish parliament that the Swedish government is positive towards technical innovations and that blockchain technology creates opportunities in a variety of sectors where the technology could be used to improve the keeping of records. Hence, the attitude should be regarded as positive.
Representatives of the Swiss federal government have publicly stated that Switzerland intends to become a leading hub for research and business solutions based on blockchain technology (see also question 6). Also the Swiss Financial Market Supervisory Authority FINMA has generally taken a welcoming attitude towards fintech and blockchain, even creating a specific fintech desk to address the needs of start-up companies and other players in that space. Recently, FINMA revised several of its circulars, which specify its practice under applicable regulation, to render them technology-neutral (e.g. by removing requirements for documentation to be held in physical, written form or by specifically enabling technology-based solutions such as video and online identification for client onboarding purposes).
That said, FINMA is strict in applying Swiss financial regulation to traditional businesses and fintechs alike. Innovators should not expect preferred treatment on the basis of the "newness" and expected benefits of their business models. A key focus of FINMA lies on the enforcement of Swiss AML regulation, in a bid to limit the risks of technology being abused for fraudulent or other undesirable purposes.
The evaluation of potential risks posed by blockchain technology to the Swiss financial marketplace is ongoing. For instance, in October 2018, an interdepartmental coordinating group on combating money laundering and the financing of terrorism (CGMF) published its National Risk Assessment (NRA) concerning the risk of money laundering and terrorist financing posed by crypto assets and crowdfunding. It was concluded that the risks posed by these technologies and the vulnerabilities of Switzerland in this area are considerable and that crypto currencies are particularly well suited for money laundering purposes because of their potential for anonymity. In order to meet these challenges, a national platform for judicial and police cooperation, the Cyberboard, was created in summer 2018.
Government departments and regulators have expressed support for the use of blockchain technology but voiced caution on the adoption, supporting or even using of cryptocurrencies. Such caution is understandable given the complex nature of blockchain technology, and the general ignorance of the population that these regulators aim to protect.
On the other hand, at the Africa Blockchain Conference 2018, the President of Uganda expressed support for the use of both blockchain and cryptocurrencies. Notable also, is the fact that earlier this year, the Uganda Free Zones Authority issued a license to a local company for the creation of a Blockchain Free Zone.
To date, the UK government and regulators have taken a balanced and flexible approach to the use of blockchain technology. While recognising that it has the potential to deliver significant benefits and voicing support for its development—the government notably established an All-Party Parliamentary Group on Blockchain in January 2018 to ensure that industry and society benefit from the full potential of blockchain—it has also stressed the need for caution. Both the government and regulators have emphasised the need to manage the range of risks observed in the cryptoasset market, and to ensure that the financial markets remain safe and transparent.
It is this measured approach which sees the FCA issuing a warning to consumers about the risk of ICOs with one hand, as it did in September 2017 (discussed in further detail at question 10 below), and supporting tests of blockchain technology within its Regulatory Sandbox with the other; or indeed, the Bank of England (“BoE”) supporting DLT proofs-of-concept (more on which at question 5 below) while issuing a strong statement in October 2019 that Libra—a permissioned cryptocurrency associated with Facebook—will need to meet the highest standards of resilience, and be subject to appropriate supervisory oversight.
Both the UK government and regulators have, moreover, explored how blockchain technology might be used to improve their own internal processes. For example, in 2016 the UK government tested the use of a blockchain-based system to distribute welfare payments. Since 2017 the FCA and the BoE have been working together to explore how they can use technology to make the current system of regulatory reporting more accurate, efficient and consistent. Finally, the Bank of England has recently conducted a proof-of-concept with four firms to help understand how the backbone of the existing payments system will be compatible with DLT-based payment systems.
Despite the US’s legislative “wait-and-see” approach, US agencies are active on the enforcement front to address case-by-case issues arising from blockchain and its offshoots when perceived to violate the existing legal framework. This activity has spread to the courts, which are also getting involved through state as well as private action. Except for a few states expressly hostile, blockchain is seen as an opportunity to attract investment and even the local governments have started implementing blockchain-centred initiatives within their organizations.
The Singapore government has expressed intention to support digital innovations like financial technology. Government-linked investment entities have taken investment positions in blockchain-related businesses such as digital token exchange, as well as security token exchange alongside Singapore’s listing bourse “SGX” (Singapore Exchange). There has also been various government led blockchain initiatives such as NTP and OpenCert as outlined in the above response to question 2. The various consultations initiated by MAS and the FinTech Sandbox (defined below) also allude to MAS embracing technological innovation and the emergence of new business models with a risk-based approach to ensure relevant safeguards are in place.
The Hong Kong Government and the key Hong Kong regulators have each launched various initiatives aimed at promoting the use of blockchain and DLT (see the response to question 5 below). Equally, the Government and the key regulators have each expressed caution as to the risks that come with such technology.
This balanced approach is reflected in the HKMA’s Second DLT Whitepaper (described in the response to question 3 above and the response to question 6 below), which on the one hand stresses the importance and value of DLT technology, whilst on the other hand emphasising the attendant operational and legal / regulatory risks.
As noted in the responses to the questions above, the SFC has also expressed caution in a number of circulars and statements warning investors about the risks of investing in cryptocurrencies and other virtual assets and participating in ICOs and STOs (see the responses to questions 8-15 below).