The U.K. government is to regulate digital currency exchanges for the first time, in a bid to support innovation in the nascent technology while preventing criminal use.
In a document released in conjunction with the announcement of UK’s 2015 budget, the Treasury said that intends to apply anti-money laundering regulation to digital currency exchanges in the UK.
The measures will be aimed at creating the right environment for legitimate actors in the space to flourish, while making it “a hostile environment for illicit users of digital currencies,” the government said.
The Treasury said it plans to launch a consultation later this year to seek views on how the new regulation should be shaped, including its scope and how existing anti-money laundering regulation should be specifically applied to the sector.
The consultation will also look to collect opinions on how to ensure that law enforcement bodies have the necessary skills and tools to “identify and prosecute criminal activity relating to digital currencies, including the ability to seize and confiscate digital currency funds where transactions are for criminal purposes.”
The government also announced that it intends to develop a set of best practices and standards for digital currency businesses to ensure consumer protection. The voluntary standards will be developed by the government, the British Standards Institution and the digital currency industry.
The UK Chancellor of the Exchequer George Osborne had last summer announced that he would look into how virtual and digital currencies—such as bitcoin–should be regulated. The Treasury launched a consultation seeking views from the industry on the matter. The document published today was the government’s response to the first consultation.
The government’s move comes a month after the Bank of England announced that it would undertake research on central bank-issued digital currencies. This would look into the costs and benefits of a central-bank run system.
The measures are part of wider push by the UK government aimed at supporting growth in its growing financial technology sector and stimulate competition in the banking sector. The Budget also included measures to the creation of an open API (Application Programming Interface) in banking – or a set of programming instructions for accessing web-based applications that would make it easier for fintech firms to access banking data.
In the document published on Wednesday the government also acknowledged the potential in the underlying technology behind digital currencies. Over the past year many in the technology and financial sector have come to believe that the distributed ledger system underpinning bitcoin and other virtual currencies can be adapted to record and transfer other types of value. The government said it would launch a research initiative to address the opportunities and challenges for digital currency technology.
The digital currency industry welcomed the government’s announcements.
Tom Robinson, a board member of the lobby group UK Digital Currency Association, said “Today’s announcement is significant in that it brings bitcoin and other block chain technologies closer to mainstream adoption.”