No Result
View All Result
SUBSCRIBE | NO FEES, NO PAYWALLS
MANAGE MY SUBSCRIPTION
NEWSLETTER
Corporate Compliance Insights
  • Home
  • About
    • About CCI
    • Writing for CCI
    • NEW: CCI Press – Book Publishing
    • Advertise With Us
  • Explore Topics
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Internal Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Well-Being at Work
    • Leadership and Career
    • Opinion
  • Vendor News
  • Career Connection
  • Events
    • Calendar
    • Submit an Event
  • Library
    • Whitepapers & Reports
    • eBooks
    • CCI Press & Compliance Bookshelf
  • Podcasts
  • Videos
  • Subscribe
  • Home
  • About
    • About CCI
    • Writing for CCI
    • NEW: CCI Press – Book Publishing
    • Advertise With Us
  • Explore Topics
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Internal Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Well-Being at Work
    • Leadership and Career
    • Opinion
  • Vendor News
  • Career Connection
  • Events
    • Calendar
    • Submit an Event
  • Library
    • Whitepapers & Reports
    • eBooks
    • CCI Press & Compliance Bookshelf
  • Podcasts
  • Videos
  • Subscribe
No Result
View All Result
Corporate Compliance Insights

The Regulatory Imperative for Blockchain

by Jim Hurley
September 15, 2016
in Uncategorized
How financial regulators can respond to blockchain

Do you have blockchain fever? A lot of frenzied activity is underway in the financial services industry (FSI) focused on trialing and concept-testing distributed ledger technologies underlying the digital currency Bitcoin. Traditional financial services firms are not only testing Bitcoin, but also other uses of blockchain for everything from capital markets to payment systems, trade settlement and clearing, commercial paper, derivatives trading and catastrophe reinsurance.

Some of these trials will go nowhere, others will morph and change shape and still others will get to market as the digitization of the industry deepens. Most prognosticators expect several key industry trends to emerge out of the application of blockchain, including:

  1. A reduction of post settlement costs as labor is replaced by digital ledger systems
  2. An increase in the velocity of capital as transaction-settlement times are dramatically reduced from three days or more to 10 minutes or less
  3. Change in the consumer brokerage and back-end financial closing industries
  4. A replacement of paper-based records by digital-based trust.

Amidst all the hype about the potential change, disruption and displacement caused by blockchain, most are ignoring a reality about trust and brand: trust in brands is what occurs between people and their experiences with companies, and it is reinforced by behavior, experience and habit. Changing people and their habits from legacy-based systems—including paper-based procedures—is hard and will take time. And so it will be for blockchain. While blockchain may end up displacing and disrupting different parts of the financial services industry, its affects will occur over a longer time frame than many realize – seven to 10 years and more.

Nevertheless, change is in the air, and Blockkchain is the agent of change. What is perhaps not being noticed—and should be—is that blockchain is not one, but multiple ecosystems.

There are at least four ecosystems of blockchain emerging, including:

  1. Public blockchains. Bitcoin and related digital currency applications are the first of many other publicly accessible ledgers.
  2. Private blockchains. Private company supply chain applications will be used to accelerate the flow of capital, reduce days outstanding and reduce third-party cost and delay in the supply chain.
  3. Consortia blockchains. R3 CEV and others are industry-specific applications of digital ledgers that are permissioned versions of public blockchains.
  4. Sidechains. These are the linkages for conducting transactions between multiple blockchain ecosystems.

There are a number of obvious regulatory issues bubbling up to the surface as FSI companies trial and test blockchain. Among them are the following:

  • Trust. One of the unseen problems being investigated is replacing miners and their Bitcoin incentives for other ecosystems, including private, consortia and sidechain blockchains. In the Bitcoin version of blockchain, it is miners—people and organizations—that are incented to verify the transactions and blocks of the blockchain by being paid in Bitcoin for their trouble, time and expense to do so. The question emerging from these investigations into non-miner systems is, if miners do not act as trusted third parties, what other trust mechanisms are built into the fabric? As such, a key regulatory issue for financial markets with any miner system replacement will be how to eliminate potential for fraud and conflict of interest.
  • Conflict of interest and dark pool trading. Another unseen problem being investigated is the varying lengths of time it takes to build out the blocks of the blockchain and its impact on fraud and conflict of interest. Today, Bitcoin is self-regulated to achieve this in about 10 minutes. But other uses of blockchain will have different design intents, from nearly instantaneous real-time to next-day response. One of the key regulatory problems for financial markets with different block-building and validation times is the potential for fraud and conflict of interest where dark pool traders can gain timing advantages and trade against the market.
  • KYC and Trust. Is knowing your customer (KYC) left to a market of third-party intermediaries, or are digital ID efforts accelerated for blockchain applications? Do we use a reputational trust model or a third-party trust model for issuance and validation? And what happens in a world where some digital IDs are legally supported and granted in some countries but not recognized or accepted in others? Is there guidance on what is out of bounds versus in bounds for some markets and not others according to regulators?

The activity and rate of change around uses of blockchain in FinTech is blistering. However, for sell-side, buy-side and financial exchanges that make up the FSI, the level of engagement and interaction between the FSI and its regulators appears disjointed and slower than a snails-pace. Fortunately, some regulators are beginning to investigate what blockchain means in the U.S., Europe and the U.K.

In the midst of all this, financial regulators have an opportunity. They can regulate with enhanced transparency and with access to auditable data baked into the emerging and still-to-come blockchain ecosystems. Today, the many different regulatory bodies involved seem frozen in place, unable to respond to requests from the regulated or coordinate policy across states and international borders.

Policy-setting and studies will take regulators only so far. The technology around blockchain is moving too fast for policy studies and papers. Perhaps the regulatory imperative is for regulators to have some skin in the game: to get their hands and minds dirty with what is possible for  the regulated to do with blockchain. Perhaps it is time for the world’s financial regulatory bodies to fund and test a RegTech with its own squad, labs and apps. This would enable regulators to intelligently direct and respond to the emergence of blockchain and insist on regulated use of the technology as it impacts finance and before it spills over into the many industries finance touches.


Tags: Communications Management
Previous Post

Today’s Proxy Statements: Where Accounting Meets Marketing

Next Post

Technology & The Scarcity of Compliance Talent

Jim Hurley

Jim Hurley

Jim HurleyJim Hurley is a research director with Saugatuck Technology, an Information Systems Group (ISG) business unit. In his role, Jim provides clients with research-based insight into the future of business IT for strategic and tactical growth and profit. Mr. Hurley focuses on areas that are disrupting the uses and value of digital business. Mr. Hurley brings his experience running and managing lines of business in different industries and the enterprise uses of IT to bear for clients in the research he conducts and publishes. He specializes in primary research, software and hardware systems, digital security, compliance, privacy, data science, analytics, machine learning, primary research and performance benchmarking, among others.

Related Posts

stack of newspapers on laptop

The Social Construction of a Scandal

by Michael Toebe
December 9, 2019

Do corporate execs and legal counsel truly understand the role news media plays in establishing the narrative about fault and...

woman holding smartphone with many "like" and "heart" reactions

Engaging Social Media is More Effective Risk Management

by Michael Toebe
October 25, 2019

Social media communication is a rarely implemented risk management tool, but it should get more play. Michael Toebe makes the...

black and white illustration of shark jumping out of water

The Shark in the Wave: Revealing the Lurking Danger of Slack Data

by James Murphy
June 17, 2019

Hanzo’s Jim Murphy explores the danger of Slack data; voluminous, informal, unstructured and context-dependent, it’s a threat hiding in plain...

hand holding whatsapp icon on pink background

The FCPA Compliance Challenges in Using WhatsApp and How Companies Can Address Them

by Matteson Ellis
May 13, 2019

Matteson Ellis describes what a compliance policy for ephemeral communications should look like – a concern for Latin American countries...

Next Post
Advanced technology delivers cost-effective compliance management

Technology & The Scarcity of Compliance Talent

Compliance Job Interview Q&A

Jump to a Topic

AML Anti-Bribery Anti-Corruption Artificial Intelligence (AI) Automation Banking Board of Directors Board Risk Oversight Business Continuity Planning California Consumer Privacy Act (CCPA) Code of Conduct Communications Management Corporate Culture COVID-19 Cryptocurrency Culture of Ethics Cybercrime Cyber Risk Data Analytics Data Breach Data Governance DOJ Download Due Diligence Enterprise Risk Management (ERM) ESG FCPA Enforcement Actions Financial Crime Financial Crimes Enforcement Network (FinCEN) GDPR HIPAA Know Your Customer (KYC) Machine Learning Monitoring RegTech Reputation Risk Risk Assessment SEC Social Media Risk Supply Chain Technology Third Party Risk Management Tone at the Top Training Whistleblowing
No Result
View All Result

Privacy Policy

Founded in 2010, CCI is the web’s premier global independent news source for compliance, ethics, risk and information security. 

Got a news tip? Get in touch. Want a weekly round-up in your inbox? Sign up for free. No subscription fees, no paywalls. 

Follow Us

Browse Topics:

  • CCI Press
  • Compliance
  • Compliance Podcasts
  • Cybersecurity
  • Data Privacy
  • eBooks Published by CCI
  • Ethics
  • FCPA
  • Featured
  • Financial Services
  • Fraud
  • Governance
  • GRC Vendor News
  • HR Compliance
  • Internal Audit
  • Leadership and Career
  • On Demand Webinars
  • Opinion
  • Resource Library
  • Risk
  • Uncategorized
  • Videos
  • Webinars
  • Well-Being
  • Whitepapers

© 2022 Corporate Compliance Insights

No Result
View All Result
  • Home
  • About
    • About CCI
    • Writing for CCI
    • NEW: CCI Press – Book Publishing
    • Advertise With Us
  • Explore Topics
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Internal Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Well-Being at Work
    • Leadership and Career
    • Opinion
  • Vendor News
  • Career Connection
  • Events
    • Calendar
    • Submit an Event
  • Library
    • Whitepapers & Reports
    • eBooks
    • CCI Press & Compliance Bookshelf
  • Podcasts
  • Videos
  • Subscribe

© 2022 Corporate Compliance Insights

Welcome to CCI. This site uses cookies. Please click OK to accept. Privacy Policy
Cookie settingsACCEPT
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
SAVE & ACCEPT