At the start of 2015, I was honoured to be invited to join a new group called the Whitechapel Think Tank. The group was initiated by Jeremy Wilson, Vice Chairman of Barclays Corporate Banking and John Edge, Managing Partner, RRVIG.
The first meeting called together UK Government, Treasury and the Bank of England, Barclays thought leadership, a number of key influencers and thought leaders in finance and technology, and some large corporate customers of the bank. The group has been meeting regularly ever since, with support from the Payments Council, and finally went public at a meeting of the Financial Services Club last week.
It was a good meeting attended by almost 150 people, and demonstrates how hot the topic is in finance.
Oh, what was the topic? What is the Whitechapel Think Tank focused upon?
The Blockchain of course or, if you prefer, the use of Distributed Ledger Technology (DLT).
Jeremy, John and Simon Taylor, who heads up blockchain developments for Barclays Group, talked about their findings and thoughts so far. It was a fascinating discussion and included reference to many of the challenges of DLT – lack of scalability, use of private versus public ledgers, interoperability, implications of the darknet, etc – as well as many of the opportunities – the ability to start real-time exchange of value for free, the upgrade of infrastructures, the capability to replace physical ledger chains with digital ledger chains, the improved resilience and security this delivers and more.
I would love to reiterate the whole discussion here, but do not feel that’s appropriate so I’m going to share something else that came out of the group instead. In case you didn’t spot it, the European Securities and Markets Authority (ESMA) issued a Call for Evidence in the use of DLT earlier this year.
A Call for Evidence is an EU regulatory platform that allows interested parties to signal their interest and express their views and concerns in the preparatory phase of regulatory directives. They also let interested parties comment on the different documents under preparation in ESMA in relation to restrictions, such as reports on market instruments in articles and guidelines on restriction entries.
ESMA’s call for evidence was opened in spring and requested through the summer 2015, with a description as follows:
ESMA has been monitoring and analysing virtual currency investment over the last 6 months, to understand developments in the market, potential benefits or risks for investors, market integrity or financial stability, and to support the functioning of the EU single market.
ESMA’s analysis is set out in this paper. ESMA is seeking to share its analysis in order to promote wider understanding of innovative market developments, and invites market participants and other stakeholders to submit feedback and any additional information on the following topics:
And, just to show you how advanced ESMA’s thinking has progressed, this chart proved particularly interesting:
It shows a potential framework for using blockchain technologies for European investment markets clearing and settlement processes.
The block chain unites the functions of several traditional regulated entities: it is the register of all transactions and hence all balances in the VC, a function that is normally provided by the central bank and banks more in general as well as central securities depositories (CSDs). Furthermore, the block chain clears and settles transactions by enabling confirmation of transactions. For most virtual currencies, transaction as well as clearing and settlement times seem to be much quicker than in the traditional regulated system. Confirmation of a transaction and settlement takes at most a couple of hours and not days. Apart from that, transaction costs can be much lower than the fees charged via traditional payment processing or securities brokerage and settlement. For example, the transaction fee for an NXT transaction is currently a flat fee of 1 NXT, which is currently the equivalent of a bit over 1 cent (USD).
The call for evidence received replies from ABN AMRO., CFA Institute, CME Group, DBT Labs, Deutsche Bank, Digital Asset Transfer Authority, ECSDA (European Central Securities Depositories Association), Euroclear, Intesa Sanpaolo, Krypto FIN ry, LedgerX, Lykke, Modular FX Services Limited, NxtLegal.org, PAYMIUM, SWIFT and Tradernet Limited. You can find the full responses here, but a few highlights.
ABN AMRO sees the main benefits of distributed ledger technology in the following four scenarios:
CME Group would like to draw to ESMA’s attention the following:
In addition to digital currency being a potential new fiat currency, digital currency presents the opportunity for a number of related products such as indices and derivatives, and blockchain as a technology to create a universal ledger.
There is a CFTC regulated entity approved to trade NDFs on Bitcoin (BTC) and other applicants have also applied for CFTC approval to trade physically delivered options on Bitcoin. There are also companies/startups based in the UK which trade forwards of USD/BTC.
In addition, there are also numerous companies/startups that are less developed, which trade futures on USD/BTC, and for which trading appears to settle in Bitcoin. Additionally, there are a number of digital currency related funds.
The Isle of Man and Jersey governments have been vocal in the promotion of Bitcoin related investment products and enterprises. There are a growing number of companies/startups offering cryptocurrency-related services and products from these jurisdictions as well as from Luxembourg.
There are a number of areas where we see potential for the use of this technology:
Distributed ledger could offer a number of potential advantages for post trade markets:
Possible factors increasing the risk for investors in virtual currency products include:
Formed at the start of 2015, the Whitechapel Think Tank (WTT) is a consortia of different interests developing use cases and testing of blockchain and shared ledger technologies in banking, payments, government and commerce. The steering committee includes representatives from Barclays Bank, the Bank of England, BNY Mellon, the FSA, DWP, Ripple Labs, HSBC, Innovate Finance and more, and is facilitated by Payments UK, who provide the Secretariat for the WTT. In one of their first public discussions of the work of the group, the WTT Co-Chairs Jeremy Wilson and John Edge will share the results so far.
Date
Thursday, 12 November 2015
Time
18:00 GMT
Cost
Free
Share this event on social media:
Location
Barclays Rise London
41 Luke street
Shoreditch
EC2A 4DP