Were the US Securities and Exchange Commission to oversee every transaction in real-time, it would need to monitor a massive 20 terabytes of data per second, every second. The technologies, such as Bitcoin technology which underpins crypto-currencies, could hold the key to revolutionising the ways in which we transact.
Were the US Securities and Exchange Commission to oversee every transaction in real-time, it would need to monitor a massive 20 terabytes of data per second, every second. Such a large volume of data is by no means an all-American problem – regulators in the UK, EU, and beyond all have to meticulously monitor the reams and reams of financial information generated by the very frameworks they put in place.
So, what’s the problem? After all, Google handles more than 20 petabytes every day. The issue for any regulatory body is that this oversight is retrospective, listing deals which have already been done. For a regulator to take a truly proactive approach, these labyrinthine paper-based processes need to make way for a truly high-tech solution, and Distributed Ledger Technology (DLT) could be just that.
The technology which underpins crypto-currencies such as bitcoin could hold the key to revolutionising the ways in which we transact, not only in financial services but in any industry where two or more parties exchange value. Some of the largest financial services firms are opening their very own labs to explore just how DLT can offer a completely transparent, secure way of transacting. Because DLT offers the possibility of an irrefutable ledger of fact, the possibilities for the regulator are plentiful. If both financial services firms and the regulator shared the same view of all transactions, there would be no room for error. Where we have a cumbersome, subjective system which requires a huge amount of time, effort, and importantly, money to operate, we could have an intelligent, real-time system which flags anomalous transactions, creating a level of security that legacy systems have failed to deliver so far.
DLT could be as beneficial for the regulated as it is for the regulator. Firms would have much tighter control over their transactions, ensuring that any mistakes are rectified before they’re completed by receiving early-warning signals instead of using the current system to rectify simple mistakes. Company directors, too, would be able to divest themselves of the legal burdens surrounding the protection of client funds, accountability, and so on, proving to the regulator and the industry that they’re always on top of their game.
For financial services providers, compliance procedures like KYC and AML can be hugely costly and lengthy, and these costs are then passed on to the consumer. DLT could effectively replace these hugely expensive processes and offer the consumer much better value-for-money as a result. What needs to happen to ensure this becomes a focus?
A barrier to innovation is often when regulators or large enterprises are institution-led rather than technology-led, and that must be addressed. An initial significant investment in technologies like DLT could pave the way for huge savings in time, effort, and staff costs further down the road. For this to happen, CTOs and CIOs of regulatory bodies need to be empowered with the resources and funds they need to deploy these systems, becoming proficient technologists themselves.
At the moment, the regulator relies on dated risk reports, stacks of statistics, and sometimes subjective judgements to inform decisions. The future of DLT, though, could prove that to be forewarned really is to be forearmed.
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Claire is a serial entrepreneur and a global leader in financial services, technology and smart cities industries.
Claire is Founder, CEO, and Chairwoman of ENTIQ, an innovation an economy enabler, and a leader in innovation delivery, new venture development and ecosystem creation.
Having designed and developed the Level39 Technology Accelerator in its first two years, and run world-leading innovation programmes such as Cognicity (a smart city technology pilot programme in Canary Wharf), Claire is a specialist in fintech, entrepreneurship, innovative technologies and economic development.