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The EU and blockchain: taking the lead? (II)
|6-7-2017 | Carlo de Meijer | treasuryXL |
European Parliament
European Parliament votes for smart regulation of blockchain technology
Last year June the European Parliament voted for ‘smart regulation’ of blockchain technology, taking a hands-off approach. The MEPs voted in a proposal set out in a resolution drafted by Jakob von Weizsäcker, suggesting that a new task force established at the EU level which would be overseen by the European Commission, should build expertise in the underlying technology. It would also be tasked with recommending any necessary legislation, but the text warns against taking a ”heavy-handed approach” to this new technology.
The proposal clearly stated that distributed ledger technology should not be stifled by regulation at this early stage.
EPRS blockchain report
In February the European Parliamentary Research Service (EPRS) published a new report “How blockchain technology could change our lives”, providing an introduction for those “curious about blockchain technology” and aimed at stimulating reflection and discussion.
“Spotlight on Blockchain” workshop
In collaboration with the European Commission, the European Parliament has organised various blockchain events including a kick-off conference on “Demystifying Blockchain” and a series of workshops to look at blockchain developments and use case applications.
A session of discussion early May held at the European Parliament (EP) centred on the future of blockchain regulation in the 28-nation economic bloc. The “Spotlight on Blockchain” workshop, was hosted jointly by the European Parliament and the European Commission.
Part of the program initiated by the Blockchain Observatory was to cautiously approach the who, what and why of blockchain legislation.
European Central Bank
Report: Distributed Ledger Technology (DLT) – challenges and opportunities for financial market infrastructures
The European central bank (ECB) has led a study to analyse the benefits and risks of blockchain technology and consider its possible integration in its market infrastructure. The final report named Distributed Ledger Technology (DLT) – challenges and opportunities for financial market infrastructures was published in March this year.
In the report the ECB acknowledges the various benefits of DLT, such as the ability to lower back office costs and improve reconciliations by enabling automatic updates of records as well as shortening settlement cycles and therefore reducing collateral requirements.
The ECB however concluded that the distributed ledger technology does not (yet) meet the Bank’s requirements in terms of safety and efficiency. The bank is not firmly opposed to blockchain, but it considers that the technology is not mature enough to be integrated into its infrastructure as it is constantly evolving, citing deficiencies in safety and security. The report’s tone is in keeping with the ECB’s cautious approach to DLT and mirrors previous statements made by bank executives.
The European Central Bank has ruled out using distributed ledger technology within the so-called Eurosystem’s market infrastructure for the foreseeable future, until the software meets high safety and reliability standards.
“Yet the technology does not yet meet the ECB’s standards for safety and efficiency, says the report” “The ECB is open to considering new ways to enhance its market infrastructure. However, any technology-based innovation would have to meet high requirements in terms of safety and efficiency.
DLT Project Team
Nonetheless, the ECB is keeping its options open, recognising the benefits that the technology could bring to securities settlement. To this end, the ECB has created a DLT Task Force to “bring together market experts on financial innovation and cyber security. Its objective is to avoid any negative consequences of technological innovation regarding the harmonisation and integration of post-trade markets in Europe and to explore the potential of DLT to help remove some of the remaining barriers to a fully integrated post-trade market in Europe”. For that they hired a senior technology executive, Dirk Bullman, with practical experience in distributed ledger applications and front and back office project management expertise
T2S
The ECB will continue to monitor DLT’s developments and could use the technology in the administration of Target2Secrities. The report states that DLT could play an important role in the administration of Target2Secrities, as well as helping to achieve its overall aim of “deeper integration of financial markets”.
Bullmann’s group is now exploring how DLT could be used in its new securities clearance platform T2S. Central securities depositories (CSDs) that participate in T2S today can effectively pool their securities so they can be bought and sold by investors across Europe. Since some technology would need to be selected in standardizing the issuance, Bullmann said DLT was a natural candidate for testing.
ECB – Bank of Japan joint initiative
The ECB has also launched a joint research project with the Bank of Japan in December last year to study the impact of new innovations of the global financial market and explore possible use of blockchain technology for market infrastructure services.
Bullmann’s task now is to coordinate with the Bank of Japan (BOJ) to explore topics such as how financial market participants could send payments using the technology, prioritizing how a certain payment might be cleared, for instance.
European Supervisory Authorities
The joint committee of the European Supervisory Authorities has released a report in April on Risks and Vulnerabilities in the EU Financial System, in which cybersecurity, including the rising use of blockchain technology, is marked as a major concern for the financial sector.
While further study is required before the EU submits new regulation regarding the financial sector and FinTech adoption, also the European Securities and Markets Authority (ESMA) has undertaken a study of cyber risk and controls of financial institutions throughout the EU. These results will be analyzed in light of existing regulations and used in making future recommendations. In June the ESMA publicized its response to the commission’s proposal on FinTech regulation following a public consultation.
ESMA and regulation
The ESMA, has stated in a new report that the current regulatory framework in effect does not pose a hurdle for the adoption and development of blockchain or distributed ledger technology in the short term. The report acknowledges the benefits of adopting blockchain before notably adding that blockchain applications are still at a nascent stage and, as such, do not require regulation. Regulatory action for blockchain technology at this ‘early stage’ is ‘premature’, said the European Securities and Markets Authority (ESMA) in its report.
The ESMA states that it does not see blockchain technology, through its fundamental core concept of decentralization, post a threat to central financial market infrastructures. The ESMA deems it “unlikely” that blockchain technology would eliminate financial market infrastructures such as Central Securities Depositories (CSDs) and Central Counterparties (CCPs). Still, the watchdog says it “realizes” that blockchain technology may render some traditional processes redundant, or affect and “change the role of some intermediaries through time”
ESMA adds that the presence of blockchain technology “does not liberate users from complying with the existing regulatory framework, which provides important safeguards for the well-functioning of financial markets.” The ESMA will continue to monitor developments in the Fintech space, to assess if blockchain technology requires a regulatory response.
European Union Agency for Network and Information Security (ENISA)
The European Union Agency for Network and Information Security (ENISA) also entered into the blockchain debate with a report launched in December 2016 aimed to provide financial professionals in both business and technology roles with an assessment of the various benefits and challenges that their institutions may encounter when implementing a distributed ledger.
ENISA analysed the technology and identified security benefits, challenges and good practices. There are however new challenges that the technology brings, like consensus hijacking and smart contract management. Additionally, it highlights that public and private ledger implementations will face different sets of challenges.
ENISA has identified good practices to overcome the issues identified as well as introduce the key concepts that decision-makers should be aware of when approaching this technology. Some good practices are: using recovery keys; using multiple signatures for authorizing and processing transactions; and, using library of standardized smart contracts.
In this paper, they also identified that there are challenges that may require further development, such as: anti-money and anti-fraud tools; interoperability of blockchain protocols; and, legal provisions and tools for implementing privacy and the right to be forgotten.
You can read the full article by clicking on this link.
Carlo de Meijer
Economist and researcher
Banking license Klarna & Adyen: The end of their competitive advantage?
| 5-7-2017 | Pieter de Kiewit |
Compliance
As to compliance in the banking sector this might be a challenge. The regulators think that by imposing new legislation on banks they will prevent all that went wrong in the past. I think this is an illusion. The effect is an increasing demand for experts who can take care of compliance. As a treasury recruiter I know bankers, also the ones with the proper expertise are fleeing the bank because compliance is demotivating a lot of them. This results in an increase in recruitment assignments and salary levels. This is not an issue relevant for Amazon.
The upside for the PSPs in comparison to Amazon is that they will be able to work with state of the art technology and challenge traditional banks who have to work with legacy systems. As far as I know, Amazon is not planning to close traditional outlets. And retail always has had a quite modern infrastructure. I cannot see yet how they would be able play the technology trump as hard as the PSPs can.
Both modern challengers do have an obvious competitive advantage. Especially for the PSPs I wonder if the extra burden of compliance will outweigh this advantage. Both client perception and cost levels will have to be monitored closely. The interesting thing of this all is that, by the time we might be able to know, the market situation might have been flipped twice again. It are interesting times, not?
Pieter de Kiewit
Owner Treasurer Search
More to read from this author:
Interesting transfer Joop Wijn from ABN to Adyen
18.000 bankaanbiedingen… and counting…up and down!
| 4-7-2017 | Rob Bekker |
Op 30 juni j.l. publiceerde de Autoriteit Financiële Markten (AFM) haar voortgangsrapportage inzake het Uniform herstelkader rentederivaten MKB (‘UHK’). De teller voor het aantal MKB-klanten dat valt binnen het toepassingsgebied staat op 18.000. Hiervan is het leeuwendeel klant van Rabobank of ABN AMRO. Dit aantal zal nog oplopen, immers nog niet alle dossiers zijn beoordeeld. Wat dat betreft kan de teller nog oplopen.
Wat de countdown betreft…Het door de banken versturen van bankaanbiedingen ter compensatie gaat opnieuw langer duren dan oorspronkelijk aangegeven. ING, Van Lanschot, de Volksbank en Deutsche Bank geven nu aan alle betreffende MKB klanten vóór jaareinde een bankaanbod te kunnen doen. Voor Rabobank en ABN AMRO zal dit doorlopen tot in 2018. Voor de groep kwetsbare klanten geldt dat deze, conform het UHK, met voorrang wordt behandeld. Naar verwachting kan deze groep in september dit jaar een aanbodbrief tegemoet zien met in elk geval een voorschot op de coulancevergoeding. Dit voorschot zou dan minimaal 80% van de coulancevergoeding betreffen, ofwel van stap 3 in het UHK. Deze stap lijkt ’t meest eenvoudig te berekenen en sowieso gemaximeerd op EUR 100.000,-, maar is ook afhankelijk van stap 1 en 2. Toch in elk geval een stap(je) vooruit.
Dat de herbeoordeling dus geen eenvoudige rekensom betreft moge opnieuw duidelijk zijn. Kennis en inzicht vanuit de treasury discipline zijn hierbij onontbeerlijk, zelfs met een leidraad als het UHK. De AFM geeft aan dat de banken in hun aanbodbrieven de MKB klanten zullen adviseren het bankaanbod zorgvuldig te beoordelen en zo nodig daar een adviseur voor in te schakelen (voor eigen kosten, dat dan weer wel). Het simpele feit dat het de banken zelf kennelijk al veel moeite kost om een en ander te herbeoordelen doet veronderstellen dat dat in elk geval een goed advies lijkt.
Ondertussen gaat de countdown verder !
Rob Bekker
Associate Partner at Treasury-linQ”
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Rentederivaten in de ban…of toch niet?!
Herstelkader rentevaste MKB leningen?