By Phoebe Seers and Elizabeth Howcroft LONDON/PARIS, March 4 (Reuters) - British and U.S. regulators are divided over how to test blockchain-based versions of financial securities, with Britain
US and UK Diverge on Crypto and Blockchain Regulation in Financial Markets
By Phoebe Seers and Elizabeth Howcroft
Regulatory Approaches to Crypto and Blockchain in Financial Markets
LONDON/PARIS, March 4 (Reuters) - British and U.S. regulators are divided over how to test blockchain-based versions of financial securities, with Britain pushing for a more cautious approach in talks aimed at boosting crypto collaboration, sources said.
The U.S. and Britain announced in September a taskforce for reducing regulation for companies seeking to access each other’s markets and to improve digital asset cooperation.
Global Regulatory Landscape and Divergence
The split shows how financial regulators globally have to contend with a pro-crypto U.S. under President Donald Trump. The U.S. has eased crypto regulation and encouraged cryptocurrency adoption.
Britain also wants to expand its digital assets industry, but some UK regulators, such as the Bank of England, are cautious about moving too quickly.
Areas of Agreement and Ongoing Collaboration
The U.S. and Britain are already in broad agreement on the taskforce's aims, including working towards closer alignment of rules for stablecoins, digital assets backed by actual currencies.
Testing Tokenised Securities: Sandboxes vs. Exemptive Relief
But Britain's preference for testing joint work on tokenised securities - blockchain-based versions of financial assets such as stocks or bonds - via a so-called "sandbox" emerged as an obstacle when the regulators met earlier this year, two sources who attended the discussions said.
Regulatory sandboxes are used by Britain's financial watchdog to test innovative financial products in a controlled environment.
A U.S. Securities and Exchange Commission representative at the meeting in January this year expressed concern about using a sandbox, citing doubts about the commercial viability for participants and its potential impact on innovation, the two sources, who attended the January meeting of the Transatlantic Taskforce for Markets of the Future, said.
The SEC is weighing a different approach to tokenisation, known as "exemptive relief", which has the backing of the U.S. crypto industry, the sources said, asking for anonymity because the talks were private.
Statements from Regulatory Authorities
The SEC told Reuters it would continue working with the UK "to build consensus and harmonize rules for international market participants", adding there was "significant opportunity to align our frameworks to support the future of finance."
The BoE and UK finance ministry declined to comment. The U.S. Treasury did not respond to a request for comment.
The FCA said sandboxes can be valuable as the two countries develop capital markets and payments systems while "maintaining trust and integrity."
Regulatory sandboxes give firms "space to test new ideas in a live but controlled environment and helping us understand emerging risks and opportunities," the FCA said.
Risks, Opportunities, and Future Outlook
Tokenisation's supporters say it can be more efficient and cheaper, but regulators say tokenised stocks create new risks for investors and could harm market integrity.
Both sides of the taskforce also want to agree on reciprocity, so that companies regulated in one market will be able to transact in tokenised stocks in the other with limited additional checks, the two sources said.
The taskforce will report its recommendations by the summer.
(Reporting by Phoebe Seers and Elizabeth Howcroft; Additional reporting by Hannah Lang and Douglas Gillison; Editing by Tommy Reggiori Wilkes and Jane Merriman)
