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Regulatory Sandbox Completion

The FCA regulatory sandbox has been a unique and appropriate engagement model for Moneyfold. If it were not for the sandbox, we may have moved to Switzerland or Singapore or another jurisdiction with a proportionate regulatory approach. Credit to the FCA for effectively pursuing their mandate on competition and innovation.

We formally graduated from the regulatory sandbox programme in August 2018 and would like to share some insights. We undertook the regulatory test from February until May 2018 and completed a final report in June 2018. The final report was accepted by the FCA and we proceeded to filing a Variation of Permissions (a.k.a. ‘VOP’) request to remove the special restrictions imposed by the sandbox programme. The restrictions were removed as of August 15th, 2018.

On the Ethereum public blockchain, transaction fees are paid in ether (a.k.a. ‘gas’), which is the native transaction token (or cryptographic token). When we first proposed the regulatory test the price of ether was in the $10-20 range, yet during the test the price was in the $800-$1000 range raising serious questions about the financial viability of our proposal. Fortunately, there are multiple factors affecting the price of transacting on-chain. The transactions were more expensive than originally anticipated, but not prohibitively so.

When sending Sterling-coins from an Estonian ID to another Estonian ID, the cost per transaction was on average $2.80 (£2.10). This type of transaction is afforded blockchain-grade security and sovereign-level KYC making them a technologically-advanced and interesting option. However, this option is not practical for low-value transactions because of the cost. The transactions in our regulatory test typically took 5-to-15 minutes to be recorded on-chain – i.e. to achieve global settlement.

Once Sterling-coins were loaded on their Estonian ID’s, participants had the option of moving them to regular Ethereum accounts (a.k.a. Ethereum addresses). Subsequent transactions from an Ethereum address to another Ethereum address cost on average $0.02 (£0.015) and took 20-to-40 seconds to be recorded on-chain – i.e. to achieve global settlement. The cost compares favourably to the £0.0309 per transaction for direct access to Faster Payments System (or ‘FPS’) (Source: http://www.fasterpayments.org.uk/membership/access-options/direct-membership/fees-structure). Indeed, the transactions were executed at a 50% lower cost than direct access to FPS. Additionally, direct access to FPS is reserved for a dozen or so entities and has large upfront and monthly fees plus business operating costs, whereas access to the Ethereum blockchain is universally open and free.

It is important to note that the underlying technology protocols and the applications built on them have to advance further before the Ethereum mainnet can be widely used for executing such transactions at such low costs. Current limitations include scalability and the high volatility of the ether coins. We expect that both of these problems are resolvable in the next 2-3 years with the advancement of technology and adoption.

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