Blockchain Companies Face Complications When Attempting to Open Bank Accounts in the UK
The blockchain industry is trying to find out where it belongs in the UK, but this journey has left some companies with difficulties in the traditional finance world. To examine the effect, Digital Catapult recently published a report to see the state of the blockchain industry in the UK, as reported by The Block. In their report, they included data collected from 260 companies.
To organize the content, the report found that the ecosystem for blockchain in the area could be divided into four categories. Though it begins with the definitions of different terminology used around distributed ledger technology, the blockchain ecosystem categories include:
- Distributed ledgers
- Distributed applications developers
- Centralized systems
- Service providers
The UK is already heavily involved with the local community and has established multiple companies that work within it. The main client base appears to come from the financial sector, though there are several other industries that would like to incorporate blockchain technology. The research determined, Despite the coverage around non-traditional investment sources, only 4.5% of companies interviewed had conducted Initial Coin Offerings (ICOs). 80% had used personal funds to start their companies, 41% had raised a traditional seed round, and 25% were not currently seeking external investment.”
One of the subjects that the report seemed to focus on was the lack of bank account that many of these companies need. Approximately 54% have had a difficult time, while another 45% believe that the solution would be legal assistance.
Regulatory uncertainty played a major role in the report as well, considering how 74% of the blockchain companies surveyed brought up the lack of regulations in the space. In fact, this number surpassed the concerns that firms had about the accessibility to technical, business, or legal expertise, naming the General Data Protection Regulation (GDPR) of the EU as a point of tension.
The GDPR has been a critical part of the regulatory framework in Europe, bringing together issues involving personal data storage, blockchain technology, and related issues. Digital Catapult notes,
“This legislation raised concerns for companies using permissionless, public blockchains, which are open to anyone regardless of location, and where full copies of the database are replicated across all of the nodes participating in the network, making it impossible to selectively limit where the data goes.”
A major issue is how the GDPR makes it possible for any citizen to delete their own information at any time, which causes problems in a ledger that is not meant to be modified manually. The blockchain is designed to be immutable, which means that no user should have this ability to maintain the transparency of the technology.
Initial coin offerings (ICOs) came up as well, considering the lack of regulations to determine how funds can be raised with them. The UK Financial Conduct Authority had claimed that they would regulate this method of funding within the year, but there has yet to be any formal regulations added out in the eight months since they suggested they would. Based on the response from the companies surveyed I the report, Digital Catapult said,
“This uncertainty was raised many times by the companies consulted, as they were unsure whether they should conduct an ICO in the UK or allow UK citizens to participate given the current regulatory landscape.”
The UK has a certain advantage with their higher education and research institutions, if they wish to take advantage of these resources for the blockchain community. Back in January 2016, the Government Office for Science published an article on the UK’s view of the way that this technology could unfold in their economy.
Quoted by Digital Catapult in their report, the article said,
“Distributed ledger technologies have the potential to help governments to collect taxes, deliver benefits, issue passports, record land registries, assure the supply chain of goods and generally ensure the integrity of government records and services. In the NHS, the technology offers the potential to improve healthcare by improving and authenticating the delivery of services and by sharing records securely according to exact rules. For the consumer of all of these services, the technology offers the potential, according to the circumstances, for individual consumers to control access to personal records and to show who has accessed them.”
Even with these problems in the blockchain ecosystem, the DLT sector is still growing, which makes these corrections more critical and time sensitive. The report notes,
“Investments rose from just over US$50m in Q3 of 2016, to US$150m by Q2 of 2018 (with ICO-related investments topping US$100m in Q4 of 2017 and fiat investments climbing to over US$100m in Q2 of 2018).”