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As No-Deal Brexit Looms, UK Blockchain Startups Are Weighing Options

From longer approval processes to the threat they might lose access to the European market, it’s safe to say U.K. blockchain startups are looking for contingency plans.

A quick recap: in 2016, the U.K. held a referendum on whether to stay in the European Union (E.U.), with a majority of voters opting to leave the economic bloc. Since then, the government has been negotiating with E.U. officials on the terms of its exit – but recent hurdles have raised the specter of a “no-deal Brexit” that could lead to economic turbulence and uncertainty.

It’s that uncertainty that has some blockchain startups sweating about their future prospects – at least in the months ahead as politicians attempt to hammer out an agreement.

“Brexit is a hindrance to everything in the short term,” said Jamie McNaught, CEO and founder of Solidi Ltd, which is developing a blockchain-based payments platform that uses cryptocurrencies to facilitate money remittances.

He told CoinDesk:

“[It’s] because all fintech regulation experts and lawyers are busy with so many things at the moment. They wouldn’t be busy if the Brexit hasn’t happened. In terms of just getting time with people is difficult at this moment. Will it (Brexit) be a hindrance in the mid-and-long term? That really depends on how successful the Brexit will be.”

The startup is one of the four blockchain companies that were accepted by the U.K.’s Financial Conduct Authority (FCA) for a normally six-month-long sandbox test in December 2017.

Until this July, Solidi was still in the regulatory test, as “the whole thing is being held up by some of the requirement as to become regulated,” McNaught said.

What Solidi is waiting for is the approval of a money service business (MSB) license from HM Revenue & Customs, the U.K. authority that reviews anti-money laundering compliance. Solidi has waited nine months to get approved for the MSB license, but the process previously took about five weeks, and the startup is not the only company in this position according to the FCA, McNaught said.

Stormy horizon

To other blockchain firms who aren’t facing that specific issue, the ramifications of a “hard Brexit” have become a big concern.

Renat Khasanshyn, co-founder of Etherisc, a European firm offering decentralized insurance protocol, expects Brexit will create hurdles for users and developers of its protocol and, therefore, hamper client growth. The company’s platform allows providers to build insurance products on top of an open-source infrastructure.

But if negotiations around Brexit falter, cross-border market testing will be much harder, and compliance costs for providers will increase, as Khasanshyn explained.

“The users of our protocol will be impacted by Brexit negatively because they will need to comply with regulations in the U.K. and the EU, which will likely go in different directions,” Khasanshyn told CoinDesk. “And they will comply and pay for this compliance twice.”

For London-based blockchain startup Globacap, the biggest concern is likely to be the threat of the loss of passporting rights.

In its white paper on Brexit, the British government proposed new trade arrangements with the EU, suggesting the U.K. and the economic bloc maintain current agreements to trade goods but not services.

Under the proposal, British financial services companies such as banks, insurers and asset managers risk losing their passporting rights – which grant them unconstrained access to other EU markets – when the U.K. formally exits the bloc next year.

Myles Milston, CEO and founder of Globacap, explained that “normally, once [we] become a fully authorized securities firm, we get passporting [rights] into the rest of the countries in the EU.”

“However, obviously with Brexit, we might not get that passporting right anymore,” he went on to say. “So it doesn’t actually affect the sandbox test, but it might affect our business model after the sandbox.”

Sunnier shores

Unless a deal is struck to extend market access – at least for a transition period – these firms will have to pay up to open new bases of operation in the EU or face a severe loss of market access.

Blockchain companies that provide payment or e-money services, therefore, anticipate unfavorable impacts on their businesses, with a number of firms contemplating to set up separate EU subsidiaries to avoid being blocked from the market altogether.

Globacap is another project participating in the FCA sandbox, within which it is working on the issuance of debt and equity securities on blockchain in the FCA’s oversight.

As soon as the project goes through the test and is fully launched as a company, it plans to open an office in Europe and apply for regulatory clearance to avoid losing its passporting rights, Milston said.

“At the moment we are deciding where the best place is in Europe to start that,” he added.

Nivaura, a U.K.-based fintech company building an issuance and administration platform for securities, including tokenized securities, says its seeking approval from German regulators to open an office in the country.

“The passporting now takes about three months, and we can go anywhere,” said Avtar Sehra, CEO and chief product architect for Nivaura.”But if we have to go into Germany and set up a whole new business, there is a whole approval process. It could take from a year up to 18 months.”

Not all doom and gloom

Risks aside, not everyone that spoke to CoinDesk about the potential Brexit impact had a negative view of the situation.

Richard Cohen, a U.K.-based lawyer at international law firm Allen & Overy, contended that Brexit would have little effect on the blockchain industry as a whole – in fact, he sees it as a potential positive for the country in terms of its approach to fintech.

“The U.K. will be allowed to come up with a regulatory framework that is much more favorable to fintech companies and become a friendly jurisdiction in which banks can make the best use of blockchain and global opportunities,” Cohen argued.

Alastair Johnson, CEO of Nuggets, an e-commerce and payment ID platform, also struck a largely positive note, telling CoinDesk that his company has found the U.K. government to be a supportive partner.

And its actions to date – particularly through the FCA, which has sought to include blockchain and distributed ledger startups within its sandbox cohorts – bear out that assertion

“The U.K. is very supportive at the potential of innovation in fintech and technology as a whole,” Johnson said. “And I think they will also see that as an opportunity to create markets, continue growth and associate with Europe and the world as a whole. It’s everything that driving the support.”

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FinCEN Says It Now Receives 1,500 Crypto Complaints a Month

The Financial Crimes Enforcement Network (FinCEN) receives more than 1,500 reports every month from financial institutions regarding cryptocurrencies, a top official said Thursday.

FinCEN director Kenneth Blanco, speaking at the Chicago-Kent Block (Legal) Tech Conference, discussed the role his agency takes in regulating cryptocurrencies. He noted that while cryptocurrencies can prove beneficial for certain use cases, they also create opportunities for bad actors such as financial criminals, terrorists and rogue states.

Blanco emphasized the importance of Suspicious Activity Report (SAR) filings – a type of document that financial institutions must file following a suspected incident of money laundering or fraud. FinCEN receives more than 1,500 SARs every month regarding suspicious activities involving cryptocurrency transactions, he said.

These reports come from both traditional financial institutions and cryptocurrency exchanges, he said.

He explained:

“It was filings by both banks and other virtual currency exchanges that provided critical leads for law enforcement. This information included beneficial ownership information, additional activity attributed to the exchange of which we were previously unaware, jurisdictional information, and additional financial institutions we could contact for new leads. All of this was obtained through SARs and the supporting documents filed by financial institutions.”

Blanco also discussed FinCEN’s role in the crypto space more broadly, explaining that the regulator has worked for years in the cryptocurrency field, with a focus on “exchanges, administrators and other persons involved in money transmission” related to cryptocurrencies.

He justified the agency’s legal standing in the field by noting that cryptocurrencies acting as a substitute for fiat currencies are covered by a 2011 rule FinCEN issued regarding money service businesses that provide money transmission services.

In addition, Blanco noted that the agency has been working closely with other regulators, including the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC) on “policy development and regulatory approaches” related to cryptocurrency.

Blanco referenced initial coin offerings (ICOs) during his remarks, noting that “this rapidly growing area has gained a lot of recent public attention.” He specifically cited fraud around the fundraising method as an area of focus.

He continued:

“While ICO arrangements vary and, depending on their structure, may be subject to different authorities, one fact remains absolute: FinCEN, and our partners at the SEC and CFTC, expect businesses involved in ICOs to meet all of their [anti-money laundering/combating the financing of terrorism] obligations. We remain committed to taking appropriate action when these obligations are not prioritized, and the U.S. financial system is put at risk.”

Kenneth Blanco image via the U.S. Government / Flickr

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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NYSE Parent ICE’s New Futures Contract Will Deliver Real Bitcoin

Intercontinental Exchange (ICE), the Atlanta-based firm that owns the New York Stock Exchange, announced Friday that it plans to launch a digital assets platform and a bitcoin futures product.

Called Bakkt, the platform will leverage Microsoft’s cloud to build “an open and regulated, global ecosystem for digital assets,” according to a press release. Effectively, it will allow consumers and institutions to trade, store and spend digital assets over a worldwide network.

Notably, ICE also plans to offer a one-day “physical” bitcoin futures contract – meaning bitcoin is actually delivered on a specified date, unlike other offerings that are settled with cash. The product is expected to launch in November, pending U.S. Commodity Futures Trading Commission (CFTC) approval, ICE states.

The company said that it believes that the regulated venues will create new protocols for managing “the specific security and settlement requirements” of cryptocurrencies.

The firm adds that major companies including BCG, Microsoft and Starbucks are providing expertise on risk management and consumer experience for the project.

Starbucks will also work to develop “practical, trusted and regulated” applications for consumers to convert digital assets into US dollars for use at the firm’s outlets.

Jeffrey Sprecher, founder and chairman of ICE, said in the release:

“In bringing regulated, connected infrastructure together with institutional and consumer applications for digital assets, we aim to build confidence in the asset class on a global scale, consistent with our track record of bringing transparency and trust to previously unregulated markets.”

“Bakkt is designed to serve as a scalable on-ramp for institutional, merchant and consumer participation in digital assets by promoting greater efficiency, security and utility,” said Kelly Loeffler, CEO of Bakkt.

The release also indicates that M12, Microsoft’s VC arm, Galaxy Digital, Horizons Ventures, Alan Howard and Pantera Capital are among the firms who have either invested in, or are expected invest in, the project.

NYSE image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Coinbase Launches Crypto Plugin for Popular E-Commerce Platform

U.S.-based cryptocurrency exchange platform Coinbase has announced a new service aimed at improving access to cryptocurrency payment options for e-commerce businesses.

According to a blog post published Thursday, Coinbase Commerce – the startup’s non-custodial cryptocurrency payment solution for merchants – has now launched a plugin for popular e-commerce platform WooCommerce.

WooCommerce, going by figures cited by Coinbase, currently provides the payments system for more than 28 percent of all web stores. However, the BuiltWith currently estimates the figure is slightly lower, at 21 percent.

Even so, the addition of the plugin (available on GitHub) now makes cryptocurrency payments via Coinbase to a good chunk of the web’s e-commerce sites. It should be noted there are other similar plugins already available, such as CryptoWoo.

Coinbase said in the post:

“This increased access will lead to more widespread adoption, and ultimately, moves us closer to our goal of an open financial system.”

The blog post also revealed that Coinbase now offers the option of sending of bitcoin and litecoin directly from Coinbase Commerce, with ethereum and bitcoin cash also in the pipeline.

The news comes just days after Coinbase opened up its exchange service to U.K. customers using pounds Sterling. It will now offer same-day deposits and withdrawals using the country’s Faster Payments system.

And on July 2, the firm launched Coinbase Custody, a crypto storage service aimed at institutional hedge funds and other clients who can deposit holdings at a minimum of $10 million.

E-commerce image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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US Lawmakers Seek Blockchain Solution in Fight Against Fungal Disease

A group of U.S. lawmakers has proposed the creation of a blockchain pilot as part of a wider effort to combat infectious fungal diseases.

The proposed legislation came out of the Congressional Valley Fever Task Force, with the legislation being introduced by task force co-chairs Kevin McCarthy and David Schweikert as well as Reps. Martha McSally, Karen Bass and Kyrsten Sinema. The bipartisan bill is aimed at advancing research and treatments around coccidioidomycosis – commonly known as valley fever – among other endemic fungal diseases.

Part of the FORWARD Act, the measure calls for a blockchain pilot aimed at improving the ways in which medical practitioners can share information. The idea is that by improving the speed at which such data is moved, doctors are better equipped to handle potentially life-or-death situations involving infectious diseases.

Schweikert said in a statement:

“Our design for collecting critical clinical data, while protecting patient privacy through the use of blockchain, should become the future of medical research.”

Valley fever is a lung infection caused by a fungus living in soil. Approximately 10,000 cases are reported in the U.S. each year, and most of them originate from Arizona and California, according to the Centers for Disease Control and Prevention.

Image via Shutterstock.

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.