Barclays has been in contact with one of UK's top finance regulators, a senior official for the bank said today.
According to Ashok Vaswani, CEO of Barclays UK, the bank communicated with the Financial Conduct Authority (FCA) to bring cryptocurrencies "into play". Vaswani disclosed the conversations on Monday in an interview with CNBC.
Vaswani did not elaborate what exactly such "play" is, remarking that the bank been working with financial technology startups and the FCA for projects that focus on blockchain.
"We have been talking to a couple of fintechs and have actually gone with the fintechs to the FCA to talk about how we could bring, the equivalent of bitcoin, not necessarily bitcoin, but cryptocurrencies into play," he told the network.
As for how the regulator might react to the push, that remains to be seen.
Though the FCA has played an active role in creating an environment that fosters innovation – the regulator has welcomed a number of blockchain and digital currency related startups into its experimental "sandbox" – it has also expressed caution in recent weeks about investing in cryptocurrencies.
"I am not saying that we view digital currencies as an inherently bad thing … but we do have to exercise a degree of caution," Chris Woolard, the FCA's director of strategy and competition, said during a blockchain-related event earlier this month.
A group of seven major European banks is working with IBM to build a new blockchain-based trade finance platform for small- and medium-sized enterprises.
IBM will build and host the platform for the Digital Trade Chain Consortium (made up of seven banks including Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Societe General and Unicredit), with the goal of facilitating easier and more transparent domestic and cross-border trade for smaller businesses.
The platform will be built on the Linux Foundation's Hyperledger Fabric blockchain and will run on the IBM Cloud.
"What we'll be building is a user interface that the banks will make available through their environment to the end SME clients, for the buying SME and the selling SME. The bank will be responsible for onboarding, KYC, all those aspects associated with the client relationship," Keith Bear, VP of global financial services at IBM, told CoinDesk.
"The bank will then be running nodes within the business network, which for most of them will be facilitated by our cloud environment."
The forthcoming blockchain solution is being designed to reduce transaction costs and increase transparency for SMEs. Citing figures from the World Bank, Bear said that up to 50% of SMEs don’t have to access formal credit channels.
In this light, the blockchain solution will be the first step in addressing this financing gap for small businesses.
"It's a large and important marketplace, but it's not really well served by trade finance capabilities," said Bear. "That could clearly be an inhibitor to them being able to trade internationally and potentially domestically as well."
The solution is currently in development with a plan to go into implementation by the end of 2017.
Noelle Acheson is a 10-year veteran of company analysis and the author of CoinDesk Weekly, a custom-curated newsletter delivered every Sunday, exclusively to CoinDesk subscribers.
The Emirates Islamic Bank's announcement last week that it was planning to integrate blockchain technology with paper checks may have left many pondering the incongruity: Why waste such a modern invention on such a traditional payment method? Aren’t paper checks like, you know, so last century?
However, dig a bit deeper and you find that things are not quite what they seem.
One peculiarity of the UAE banking system is the preferred form of security for bank loans: paper checks. The established practice is that the borrower writes the lender a post-dated check for the amount of the loan, plus interest. When the loan is due, the happy lender simply cashes the check. If the repayment is monthly, the lender will often ask for a stack of post-dated checks to cover the individual payments.
This makes the process of lending much easier. With a signed check in hand, the lender can avoid rigorous vetting procedures and confirmation hassles.
Also, banks often ask for a signed paper check to cover the monthly limit before issuing a customer with a credit card. Ah, you ask, but in all the above cases, how do they know the check won't bounce?
It's a question of incentives. If you are an individual and your check bounces, you can go to jail.
At least, that was the case until a few years ago, when the bouncing of checks issued as collateral for an entire loan was decriminalized (not for monthly payments). Last year, the bouncing of any type of check from small and medium businesses (SMEs) was also decriminalized (but not yet for individuals).
With this in mind, the 'blockchain tech meets paper checks' idea becomes more interesting.
The project developed by the Emirates Islamic Bank (part of Emirates NDB, one of the largest banking groups in the Middle East) involves printing a unique QR code on each check and registering it on a blockchain platform. The checks will then be scanned when issued to validate authenticity.
Taking into account that checks are regularly used as loan collateral and repayment, the importance of their role in the financial system becomes apparent, as does the temptation to forge them. Being able to increase their reliability will be a relief to the banking sector.
If banks can worry less about fraud, they are likely to be more willing to lend, which will have a positive effect on economic activity.
The IMF recently revised upwards its forecasts for the UAE to relatively healthy figures, but easier lending will boost the outlook for SMEs, the sector that was hardest hit by the oil price crunch of the past few years.
While an overhaul of the UAE banking system to reduce the reliance on checks is likely to eventually happen, deep cultural changes take time. The Emirates Islamic Bank idea could provide a short-term solution to a systemic problem, as well as evolve the sector’s understanding of the technology’s potential.
What's more, the concept of combining digital networks with pieces of paper is intriguing, and could point to a new vector of innovation.
Physical 'guarantees' of payment that are resistant to both forgery and technological vulnerabilities? We could be looking at the birth of a whole new type of financial instrument.
Despite all the investment in blockchain technology, Morgan Stanley claims the technology remains in a “proof of concept” stage, according to Barrons. The financial services firm believes its use in regular financial settlements could be years away. Institutions like BNY Mellon and UBS have an early advantage by testing the technology. As for the surge in bitcoin’s value, Morgan Stanley is uncertain.
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The bank’s white paper maintains no “killer app” has been developed for blockchain technology.
The time frame for the technology’s implementation charted in the white paper shows 2014 to 2016 as a period of assessing blockchain’s value for financial assets. 2016 to 2018 is the proof of concept phase; 2017 to 2020 is when shared infrastructure emerges; and 2021 to 2025 is when assets proliferate.
Blockchain Rises With Bitcoin
The paper hypothesizes on the reasons for bitcoin’s surge in tandem with the interest in blockchain technology.
James Faucette, a technical analyst, explores blockchain’s progress the year after he and some Morgan Stanley colleagues first examined the possibility of its use in financial settlements.
The report also examines five case studies that include a “utility settlement coin” from UBS Group and a BN Group government bond settlement project.
The tests are based on the premise that blockchain improves efficiency. As it matures, securities firms and funds will be able to reduce labor and operating expenses. The firms will realize these benefits by deploying blockchain technology to settle transactions.
No ‘Killer App’ For Blockchain
While there are many proofs of concept being tested for blockchain, no killer app has emerged that is needed to spur widespread adoption. Hence, the technology has not faced a true test. Many of the “big questions” are yet to be answered.
The white paper claims it is too soon to make specific investment conclusions. But since progress is under way, parts of the shared infrastructure could emerge in the next year or two.
“Incumbents,” companies that have invested in blockchain’s use, are more likely to benefit from the technology and reap cost benefits or better capital efficiency in the future. These companies include ASX, UBS, BNY Mellon, State Street, JPM and Northern Trust.
Also read: Bitcoin needs regulation to boom: Morgan Stanley
Reasons For Soaring Cryptos
As for bitcoin and other cryptocurrencies like Ripple and Ethereum, the paper stated it is not clear why they are appreciating in value as fast as they are. It noted certain factors such as the rising popularity of ICOs. ICOs are funded with cryptocurrencies, pushing an appreciation circle whereby investors trade an existing currency for a new one.
Another factor is China’s inexpensive servers. A large concentration of bitcoin mining takes place in China since has cheap electricity and access to cheap servers. Fortune and The Wall Street Journal have noted the possibility that bitcoin is being used to avoid monetary controls in China.
There is also growing demand from Japan and Korea. The recent legalization of bitcoin in Japan has resulted in more bitcoin exchanges. There is no clear explanation for the surge in Korea, however.
The Bank of Thailand is opening up about the potential for blockchain disruption.
In remarks last week, Dr Veerathai Santiprabhob, the deputy chairman of the central bank's 14-member board, commented on the changing role of global finance, calling emerging technological innovations both an "opportunity" and a "challenge" while noting that he believes the nation's domestic financial institutions largely need to embrace change.
Speaking broadly about the impact of new technologies from smartphones to big data, Dr Santiprabhob discussed how blockchains and distributed ledger technologies could come to replace central institutions.
Elsewhere, he explained how blockchains and distributed ledgers are able to distribute transactions broadly, making members of any network aware of changes and consequences.
While short, the remarks are notable given the lack of public dialogue from the central bank on matters relating to cryptocurrencies and blockchain. In the past, the central bank has gone so far as to warn about the potential dangers of the technology, though businesses have often been left seeking clarity.
However, the new statements indicate change could be on the way as Thailand's financial institutions begin experimenting with the technology, a move that could perhaps both open up and ease the sometimes tense national conversation domestically.
FINRA, the self-regulatory organization for US brokers, is to host a blockchain event in New York next month.
Dubbed the Blockchain Symposium, the event will be held at the Park Central Hotel on 13th July, the organization announced this week. The lineup includes representatives from regulatory agencies including the US Securities and Exchange Commission and the Office of the Comptroller of the Currency.
FINRA's event announcement came in tandem with the launch of its new Innovation Outreach Initiative, which, according to a statement, will function as a kind of communication hub for members who are dealing with new financial technologies, including blockchain. According to its website, more than 600,000 brokers in the US are part of FINRA.
Specific elements of the effort include the creation of a Fintech Industry Committee, as well as the kick-off of regional roundtables for FINRA members to collaboratively discuss technological shifts.
"The Innovation Outreach Initiative will enable us to better track fintech developments across the rapidly changing industry environment in order to support innovation in the industry while maintaining investor protection and market integrity," Robert Cook, FINRA's president and CEO, said in a statement.
FINRA has previously highlighted how its mandate – and the rules by which its members adhere – could face change in the near future. Back in January, FINRA said in a report that many of its rules, as well as those advanced by regulators such as the SEC, "are potentially implicated by various DLT applications".
Insurance giant American International Group (AIG) and UK global bank Standard Chartered have completed a blockchain pilot designed to simplify some of the industry's most complicated insurance policies.
Built by IBM using the open-source Hyperledger Fabric protocol, the pilot revealed today tested a commercial insurance master policy written out of London and applied to local policies in the US, Kenya and Singapore.
By moving the policy from the traditional system where each counterparty would hold its own records to a self-executing smart contract written on the Fabric blockchain, the pilot reportedly showed how real-time visibility into the insurance coverage could allow recipients to be automatically notified following an insurable event.
Rob Schimek, CEO of Commercial at AIG, said in a statement:
"Our pilot proves blockchain has a powerful role to play in the future of insurance."
The multinational commercial insurance risk transfer was also notable for granting additional stakeholders (including brokers and auditors) credentials designed to show them only what they needed for their individual roles in the coverage plan.
According to the statement, the pilot recorded and tracked events that could trigger the payment of a policy, while ensuring that no single party was able to change the terms of coverage "without the consensus from others on the network".
The pilot jurisdictions were selected because they each represented different traits of a potential market. Specifically, the US market was selected for its size and complexity; Singapore was identified as a possible growth market for Standard Chartered; and Kenya was chosen for its unusual regulatory requirements around dispersals.
While London-based Standard Chartered has long been a leader in the blockchain sector, most recently announcing plans to launch a cross border payments platform powered by blockchain, this is one of AIG’s first public forays into the industry.
Over the past few months, insurance has become a heated space for blockchain innovation, with three new firms joining the blockchain insurance consortium B3i and Shanghai Insurance Exchange and nine other partners completing a test focused on this application.
Ultimately, project participants were optimistic about the test and what it hints at for this blockchain use case going forward.
The general manager of IBM Blockchain, Marie Wieck, said in a statement:
"There is tremendous opportunity to apply advancements in blockchain technology to transform the insurance industry."
The National Bank of Kazakhstan has revealed it is looking to harness blockchain technology to sell short-term debt notes to investors.
In a statement published today, the central bank said it plans to launch a mobile app that will enable retail investors to buy the short-term notes – denominated in amounts worth 100 tenge (the country's national currency) – without having to rely on a broker. The app is currently being tested internally, with a launch expected sometime later this year.
In the long term, the bank went on to say, the platform could be used to facilitate initial public offerings (IPOs). Further, the institution indicated it will look to work with the country's banking sector on future versions and uses.
"In this area, the project will continue to search for additional solutions, including ... the involvement of commercial banks," the release states.
The National Bank is said to have been looking at blockchain for potential applications since last year. Regional news source Tengri News reported last June that officials were weighing possible use cases, particularly those centered around payments.
The European Commission (EC) is launching a new blockchain research project focused on non-financial applications of the technology.
Called "#Blockchain4EU: Blockchain for Industrial Transformations", the effort will run from now until February 2018 under the direction of two EC bodies: the Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs and the Joint Research Centre.
The goal, according to a recent blog post announcing the project, is to "identify, discuss and communicate" areas in which the existing and emerging applications of blockchain and DLT can transform EU industrial businesses, effectively acting like a kind of study group.
According to the Commission, which is the executive arm of the EU, #Blockchain4EU will "explore future socio-technical scenarios of production, distribution and use", looking at benefits and risks through the lens of small and medium-sized businesses.
The Joint Research Centre is said to combine behavioral analysis and forecasting design into its desk-and-field research process, bringing together contributions from developers, social and economic scientists, entrepreneurs, labor representatives, lawyers and policymakers from local, national and EU-level jurisdictions.
The news comes almost two months after the EC announced a €500k budget for a wider pilot project to improve its institutional knowledge of blockchain. The commission further said in February that it aims to expand its support for trials involving the technology.
Singapore’s central bank and the Association of Supervisors of Banks of the Americas (ASBA) are coming together to strengthen FinTech ties between Singapore and the Americas.
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The Monetary Authority of Singapore (MAS), the country’s financial regulator and central bank, has entered a Memorandum of Understanding (MoU) with the ASBA, an organization that supervises and promotes banking practices in America with the aim to keep them up to international standards.
“FinTech is fundamentally about ideas and enterprise flowing between cities,” explained MAS FinTech chief Sopnendu Mohanty.
The MoU establishes a framework between the two authorities in their mutual interests in financial technologies. More specifically, the framework will see both authorities engage in joint innovation projects, particularly in blockchain technology and big data. Further, the MAS and the ABSA will also discuss and look into emerging FinTech trends.
“This MOU embodies MAS’ and ASBA’s resolve in accelerating the growth of FinTech in the respective regions, through increased collaboration and exchanges between our respective FinTech ecosystems,” Mohanty added.
The MAS is arguably the global trailblazer among central banks to successfully develop and test blockchain technology. Earlier this year, the island nation’s central bank announced the completion of an early phase its proof-of-concept interbank payments blockchain. More recently, details emerged that this blockchain was powered by a central bank-developed digital currency using Ethereum’s blockchain technology.
Other countries are taking notice and have made inroads toward establishing FinTech ties with Singapore, a country which they see as setting the precedent in researching and exploring new financial innovations. The likes of India, South Korea, Abu Dhabi, Japan, France and Switzerland, are all collaborating with Singapore’s central bank. The monetary authority’s partnership with the ASBA in the American continents represents its farthest partnership yet.
ASBA secretary general Rudy Araujo sees the potential of financial technologies like blockchain to “progressively change” the twin continents’ financial ecosystem.
Thus, by uniting efforts with the MAS, we expect to support the development of a regulatory and supervisory framework that while supporting financial stability, nurtures innovation, and promotes market transparency and proper conduct.