UNITED KINGDOM Law and Practice Contributed by: James Burnie, Kathryn Dodds, Olga Antonova and Nicky Androsov, gunnercooke llp
overseeing the trading algorithms and other electronic trading tools they use.
and the contractual terms will depend on the latitude the clients have in this respect.
8. Insurtech 8.1 Underwriting Processes
10. Blockchain 10.1 Use of Blockchain in the Financial Services Industry There has been a steady increase in both the accept - ance of blockchain by traditional players and increas - ing interest regarding its utilities for such businesses. This has grown beyond simply considering crypto- assets as an investable asset class to increasing dis - cussion as to how to deliver traditional products in a cheaper and more efficient way using blockchain technology. 10.2 Local Regulators’ Approach to Blockchain The FCA has generally been supportive of the use of blockchain, and indeed a common use of the FCA sandbox has been to test new innovations using blockchain technology. More recently, the FCA has been involved in the fund industry and real-world asset initiatives to encourage the use of blockchain. In terms of actual regulation, the FCA has generally adopted an approach of applying existing regulation to blockchain solutions on the basis that blockchain solutions should manage the risks covered by existing regulation, and there should be a level playing field between traditional and blockchain-based methods of operating. However, in providing the sandbox, the FCA is recognising that, in certain cases, assumptions regarding how risks may be mitigated may prove false for blockchain solutions, thus giving gives firms the ability to show the FCA where existing FCA rules may be properly adapted to take advantage of the new technology. 10.3 Classification of Blockchain Assets Whether a blockchain asset is considered a form of regulated financial instrument depends on the fea - tures of the asset, as an asset having the features of a regulated financial instrument shall be regulated as such.
The insurance industry in the UK is highly regulated, and those advising on contracts of insurance, includ - ing the underwriting thereof, need to be regulated. As a result, there are specific requirements that they need to satisfy in order to comply with their regulatory obligations. 8.2 Treatment of Different Types of Insurance Insurance is regulated differently depending on the nature and function of the insurance contract; for example, the FCA differentiates between investment and non-investment insurance contracts. The regula - tion of each depends on its specific characteristics and risks. Regtech providers are not regulated unless they are also undertaking a regulated activity in conjunction with their business. In the experience of the authors, regtech providers are generally set up as an adjunct to a regulated business, meaning that the provider is not regulated, but its clientele is. 9.2 Contractual Terms to Ensure Performance and Accuracy This often depends on the nature of the regtech pro - vider and the solution being provided. For example, in fund management, there are regtech providers that facilitate fund distribution, and in such a case there are often stringent obligations to ensure performance and accuracy, as well as sample testing to ensure that all the requirements are being met. On the other hand, there are some AI prediction tools that only have a percentage accuracy and are used for helping firms model products. In this case, the limitations are recog - nised and accepted. The overall picture is that clients have an obligation to meet their regulatory obligations, 9. Regtech 9.1 Regulation of Regtech Providers
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