Compliance aspects of the Blockchain technology - SIX · Compliance aspects of the Blockchain technology Prepared for the Swiss Banking Open Forum Sophia Bantanidis Vice President,

Compliance aspects of the Blockchain technology Prepared for the Swiss Banking Open Forum

Sophia Bantanidis Vice President, Regulatory and Market Strategy, TTS May 2016

Citi Treasury and Trade Solutions | Global Regulatory and Market Strategy

2 Compliance aspects of the Blockchain Technology

Agenda

• Introduction

• What is Blockchain?

• What does Blockchain mean for financial services?

• What are the compliance issues?

3

Introduction: Role of Citi’s Regulatory and Market Strategy Team

Identify Regulatory Priorities via the Impact on these Criteria

Payments Regulatory Expert Group Chair, and Information Security Working Group

Regulatory Affairs Committee and Intraday Liquidity Monitoring Working Group

UK Payment Systems Regulator

EPC and UK Payments Councils

Advocacy and Industry Engagement

Citi TTS’ Global Regulatory and Market Strategy function aims to: monitor emerging regulatory change; perform advocacy; support the development of appropriate business strategies around those changes; provide client support via insightful communications; and enhance communication flow and house timely, accurate information and resources globally. We also work with our innovation labs and engage with regulators, central banks and authorities on the ‘digital agenda’ and new technologies for the financial services sector

Organisation Structure Reputation

Reputation Revenue

Technology / Blockchain Clients

Compliance aspects of the Blockchain Technology



Poll Question 1

How familiar are you with blockchain?

•Expert

•Good working knowledge

•I have heard the word

•Too embarrassed to say

5

Poll Question 2

To what degree is your organisation addressing blockchain technology?

•We are actively addressing it

•We have started thinking about blockchain

•We are not looking at blockchain


A distributed ledger database based on a cryptographic P2P network providing a “single source of truth”

Disintermediates the transfer of digital assets, digital property and digital money

Provides near real-time settlement on a relatively cost effective and efficient network

Irrefutable proof of existence, proof of process and proof of provenance

What is Blockchain?

BLOCKCHAIN WHAT IT MEANS WHY IT MATTERS

Distributed Database

P2P network built with cryptography

Self-executing with high uptime and reliability

Irrefutable Ledger

Irrevocable and immutable entries

Proof of existence, process & provenance

Programmable Ledger

Embedded business logic

Self-executing contractual terms

Inbuilt Consensus

Single source of truth Reduced friction + near real-time settlement

Customized Transparency

Public,Permissioned Or Private chains

Tailored levels of control and openness


What does blockchain look like?


FINANCIAL FLOW

BLOCKCHAIN

Blockchains distributed ledger model has the potential to take steps, time and cost out of Financial Flows

Blockchain is a key technology with key benefits for financial services


Blockchains are platforms upon which many Fintech applications beyond cryptocurrencies can be built

Blockchain is bigger than Bitcoin


2013 Global Startup Funding 2015

$1BN

ESCALATING! VENTURE CAPITAL ACTIVITY IN BLOCKCHAIN IS

$99MM

Increasing VC Activity


A federated blockchain system provides control and visibility

Compliance aspects of the Blockchain Technology 11

• Requires trusted, centralized intermediaries • Batch clearing and settlement • High fees and costly infrastructure

• No (or fewer) intermediaries required • Near real-time processing and management • Low fees and reduced infrastructure cost

Financial Intermediaries (Today) Financial Protocol (Emerging)

What does it mean for Financial Services?


The blockchain technology raises questions and challenges from a compliance and regulatory perspective:

•What approach have regulators taken to date?

– Fragmented and no formal rules

•Should the technology be regulated and if yes, who do you regulate?

– Unclear

•Can blockchain be accommodated within an existing legal framework / regulations?

•How can using blockchain technology make it easier for participants and regulators to comply with rules?

•What approach are regulators likely to take in the future?

Compliance issues in blockchain technology Part 1


Compliance issues in blockchain technology Part 2 Financial institutions are investing significantly in blockchain technology, but regulatory landscape unclear

1


How can using blockchain technology make it easier for participants and regulators to comply with rules?

Blockchain provides compliance benefits both to regulators and to ‘the regulated’

•Proof of existence: increases transparency

•Proof of process and control: to demonstrate compliance with processes

•Eliminates single point of risk failure

•Enables the creation of a digital asset

15



Can block chain technology be accommodated within an existing legal framework / regulations?

•Existing regulatory framework could pose limitations / make the deployment of blockchain distributed ledger technology less straightforward in certain cases

– For example where regulation stipulates the use of certain market infrastrures like the use of CCP’s as per EMIR

– Impact of regulations imposing product intervention powers for regulators (MiFID II)

– Privacy law issues

• In contrast, the activities / parts of the financial services markets that are less regulated would allow for an easier implementation of blockchain.

What approach are regulators likely to take in the future?

•Current: Little formal regulatory guidance on the use of block chain technology by banks and other financial institutions. Open policy questions

•Future: We could imagine any future regulation addressing the regulator’s key concerns: application of consumer protection, AML and ABC measures.

16



•Blockchain presents an opportunity for banks, regulators, authorities, FinTech firms and governments to collaborate, to evolve together and to build on the positive synergies that are in line with the objective of delivering a sound service that is financially stable

•Firms continue to develop ‘use cases’ , authorities and government continue to explore the how blockchain and underlying DLT technology can be deployed

– Flexibility, adaptive to new market events

– A regulatory and supervisory response with the right balance between support and protection

•With the increasing investment in blockchain technology and increasing deployment it is likely that more formal regulatory guidance be given in the next couple of years

•Requires global regulatory collaboration and coordination like we have never seen before

17

Conclusion


Danke!


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Compliance aspects of the Blockchain technology - SIX · Compliance aspects of the Blockchain technology Prepared for the Swiss Banking Open Forum Sophia Bantanidis Vice President,