The UK Payment Systems Regulator Is Firming Up Its Approach to Regulating Crypto

The U.K.’s Payments Systems Regulator is exploring how it can regulate the crypto sector, starting by looking at distributed ledger technology, said Nick Davey, a payment specialist at the agency.

The PSR, a fairly new regulator that became fully operational in 2015, would be authorized to regulate cryptocurrencies that are used for making payments if a proposed crypto-regulation bill called the Financial Services and Markets Bill becomes law. The bill is now being considered by Parliament.

“While we don’t expect to see digital currencies replacing traditional currencies in the immediate future, it’s important that innovation and competition in payments are balanced with strong safeguards to make sure people are protected when paying for things,” Davey, who advises the PSR, said.

Read more: UK Crypto Industry Welcomes New Stablecoin Rules, Awaits Guidance

The regulator, however, has already gotten a head start in regulating the sector. The Treasury put Fnality International, a still-being-tested payment system using distributed ledger technology, under its supervision. This would be the first wholesale payment system using central bank money with a decentralized network running 24/7, Davey said. The company already has 17 major institutions as shareholders, and it will be working with some of them.

Though Fnality isn't classified as a cryptocurrency because there is no token or coin – the ledger would instead represent holdings of central bank money – the regulator can still use it to help it work out how the PSR should approach regulating crypto, Davey said.

“The use of DLT in Fnality helps us to examine how our regulation may have to change because of the technology involved, and the emphasis on the distributed nature of products and services,” Davey said.

Before the project goes live, the PSR will be looking at how people can access the payment system, what products and services it will offer and what measures it has to prevent fraud, Davey said.

Davey said working with Fnality before it is fully operational has been “helpful.”

The PSR is also keeping an eye on bankrupt FTX exchange to “assess what wider implications there are on the crypto sector,” Davey said.