The UK’s Financial Conduct Authority (FCA) is currently testing clearing and settlement solutions using Bitcoin. The financial services regulatory commission has been working with digital currency operation Epiphyte, a firm that settles cross-border payments using blockchain technology.
UK Financial Conduct Authority Is Testing the Bitcoin Blockchain
According to a few UK news sources, the FCA is determined to harness cross-border blockchain settlement. The FCA created its sandbox accelerator last spring, and received applications from roughly 69 firms. The sandbox provides an environment for early startups and legacy incumbents to build fintech solutions. Now the London-based remittance startup Epiphyte will work with the FCA to provide cost efficient and secure transactions, using a peer-to-peer protocol like Bitcoin.
During the sandbox testing phase, Epiphyte plans to provide an alternative solution to traditional SWIFT settlement methods, the FCA said. Epiphyte said it will deploy a platform called SpecialFX over the next few weeks. The solution will tether fiat currency with Bitcoin as the underlying mechanism for settlement.
“In practice, it will be FCA regulated. But it’s regulated as part of the sandbox; so it will be authorized,” said Edan Yago, CEO of Epiphyte. “It’s the same technological platform that allows you to transfer funds over Bitcoin and Ethereum and really any blockchain system. So we can integrate with any blockchain system.”
Traditional Settlement Methods Will Be Bypassed
Yago said the FCA had designated a case officer who helps coach the project. Epiphyte has worked with other legacy institutions in the past including BBVA, and more recently Visa. “The work that we did with Visa we have also done with a number of other banks— the only one that is public right now is BBVA,” he explained.
The blockchain startup says its platform utilizes the security of blockchain technology with real-time settlement. Yago added that the FCA’s sandbox provides the company with the ability to work with different clients looking to transfer funds. Epiphyte will first offer the platform to remittance companies and FX firms, finally leading to retail and enterprise solutions.
Yago also said the protocol will divert from using SWIFT or SEPA methods. The process will be completed on the blockchain and over a system that is as fast as CHAPS. By relying on systems like SWIFT, businesses often have to wait multiple days for settlement and aggregate unnecessary fees. Because the length of time is so long for standard clearing and settlement practices, Yago believes it’s less transparent and more difficult for regulators.
“There this huge amount of uncertainty. And there is no transparency, so while the transaction is being performed, you don’t know where your funds are.—From regulatory perspective, it’s much harder for regulators and law enforcement to track activity through these systems because it’s not real-time,” Yago explains to the press. “They don’t have real-time visibility, they only have retroactive visibility, and even then, they usually have to go and try and obtain information for multiple parties or intermediaries who are involved in this transaction to get a full picture.”
Believing in Blockchain’s Potential
The FCA believes blockchain has some significant potential, according to Chris Woolard, the FCA’s director of strategy. Woolard explained in August the FCA was working with firms that are creating applications to benefit customers and make regulatory compliance easier. Another cross-border money transfer service powered by cryptocurrency, BitX, will also work with the FCA.
Epiphyte’s plans to bolster the FCA’s R&D efforts with Bitcoin will use an off-chain technique. As a result, a payment channel much like the Lightning network will be deployed ensuring scaling and speed. “The transactions all can be written to blockchain; it’s a little bit like the Lightning Network. So end up with the same degree of security that you would get from blockchain transactions with a higher degree of scalability and privacy,” Yago detailed.
It will be interesting to see what kind of solutions transpire from the FCA’s sandbox as it seems they are steadfast on the use of blockchain technology.
What do you think about the FCA working with Epiphyte and utilizing Bitcoin as a settlement layer? Let us know in the comments below.
Images via Pixabay, Epiphyte, and FCA websites.
Whether you’re a beginner or a long-time bitcoin player, there’s always something interesting going on in the bitcoin.com Forums. We are proud free speech advocates, and no matter what your opinion on bitcoin we guarantee it’ll be seen and heard here. We don’t censor.
Purchase Bitcoin without visiting a cryptocurrency exchange. Buy BTC and BCH here.