Operating within the existing regulatory framework and developing workable standards emerged as key issues for financial technology innovation on a regulatory technology panel at Sibos 2016.
David Geale, director of policy at the UK’s Financial Conduct Authority, said that the regulator is focused on trying to make markets work as well as possible, while protecting consumers and market integrity, and that part of this is promoting competition in the interest of consumers.
He suggested that innovation, while it brings an element of risk, also brings about “positive disruption”. However, with regards to regulating new technologies, there is a balance to be struck.
Too much regulation could potentially “stifle things that can be good for consumers”, but regulators must not allow potentially risky technologies to be “left unchecked”.
Peter Randall, CEO of blockchain-based payment and settlement infrastructure SETL, suggested that now is the time to bring 21st century distributed ledger technology into the post-trade space. He outlined five aims that it must be able to achieve in order to be successful.
He argued that distributed ledger technology must be able to “operate at real world speed” and at “real world capacity”, capable of processing thousands of transactions per second and billions per day.
It will also have to have know-your-client and anti-money laundering compliance capabilities “as native”, and must be able to move “real world assets”—those that affect asset finality, rather than purely digital assets.
Finally, and most importantly according to Randall, it is unlikely that there is going to be one “big pan-galactic blockchain”, but there will be many chains, even within one institution, and these must be able to communicate.
Another speaker, Chris Church of Digital Asset, added to this list, saying that open source technology will be a key part of the strategy and that those who embrace open-source technology “will be the winners in this race.”
Regarding standards as a remaining issue for the development of blockchain, Randall said: “The great thing about them is that there is plenty to choose from.”
He expressed concern over the idea that there will be a lot of institutions trying to create standards, and that the industry will end up working to the lowest common denominator.
He argued that distributed ledger will do to the finance and payments industry “what the shipping container did to world trade”, noting that if the size and shape of the box is standardised, they can be much easier to manage.
In this industry, this represents dematerialising of assets, Randall said. If one box contains $1 million, and another contains a bond worth $1 million, rather than swapping the assets, either party would simply have to swap the key.
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