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How blockchain could be used in financial services

Thu 5 Apr 2018

Blockchain technology makes many promises. New whitepapers are released practically daily, extolling the virtues of distributed ledger technology and the new levels of trust, security and cost-efficiency it can offer.

One of the most obvious areas in which these promises could be fulfilled is finance. But, as yet, there hasn’t been the wholesale adoption of blockchain technology that many believe would be beneficial to everyone.

The financial services sector is understandably cautious as a default, so it makes sense that this process might take some time. Cloud Expo Europe brought together a panel of experts on the frontline to decipher why blockchain is yet to fully catch on, and what needs to be done to make it happen.

blockchain financial services panel pic

L-R – Keith Pritchard – director at base60; Keith Bear – VP, financial markets, IBM; Thorsten Peisl – CEO, Rise Technologies; Joydeb Sengupta – head of corporate strategy and planning, CLS Group; Devika Darbari – COO, Cobalt

First of all, the panellists displayed a clear sense of optimism about the technology. As Sengupta notes, blockchain technology is “trying to solve fundamentally maths based major problems that have been in the industry for a long time. We have been using traditional methods that sort of work but don’t work that well.”

On the basis of that, he argued that it would be surprising not to see actual uses by the end of the year. CLS, which provides market solutions, has developed a ‘bilateral payment netting solution’ for foreign exchange, which it says, could have been created using traditional methods. Instead, it opted for a blockchain-based solution.

The industry suffers a number of misconceptions about the adoption of distributed ledger technology

Bringing banks around the table

What, then, would bring others to do the same thing? The general consensus was that a lack of collaboration was the main stumbling block. If banks and financial services organisations could sit around the table and work together, it’s likely that the pieces would start to fall into place.

“The industry suffers a number of misconceptions about the adoption of distributed ledger technology,” noted Peisl. There is an idea, he argued, that there is a lack of standards, but Peisl says this is not correct. Instead, he says, the industry can take advantage of the standards that do already exist to connect legacy databases with blockchain-based technology.

What we do lack, noted Bear, is a central entity in trade finance. This means that the banks need to get together. However, building consortia takes a long time. Bear noted that this is already happening in his industry, but what takes time is not necessarily the technology, it is actually bringing the banks together.

Darbari put a finer point on it. “It’s like herding cats.” Even if a bank or institution has bought into the concept, getting them to see the direct benefits is difficult, particularly when it comes to pushing towards a state of shared infrastructure and sharing data. Financial services organisations, she believes, need to start seeing competitors more like partners.

Perhaps the answer is bringing in regulators to drive organisations together? Sengupta doesn’t think so. From a business perspective, he argued, regulation helps in terms of standardisation, but the business has to solve the problem itself without relying on regulators.

Blockchain and GDPR

And Darbari agrees – suggesting we flip the idea on its head and look at how businesses could drive regulators to adopt. She believes that regulators would be best off joining the ledger, thereby creating an ideal ecosystem for the flow of data.

One potentially thorny issue for those looking to implement blockchain solutions is the right to be forgotten. A key feature of blockchain databases is the immutability of the data – once it’s on the database, it is there permanently. How would this fit into a post-GDPR world?

According to the panel, there are a number of ways around this roadblock. Peisl noted the multitude of different blockchains. The common conception of blockchain stems from Bitcoin, but moving forward, and through the professionalisation of the technology, businesses will work hard to merge the principles of distribution and decentralisation, while remaining mindful of GDPR and other regulations.

Peisl brought forward the idea of custom solutions that suit a specific purpose, an idea Darbari agrees with. It is possible to build a distributed ledger with a concept of immutability, that has data security and privacy built into it in the first place – if you go into it with an understanding of what you do and don’t want to share.

Private permissioned blockchains are the answer to this, argued Bear. And bringing blockchain technology into the financial services, he believes, is all about this – adding trust into what is currently a trustless environment.


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