How distributed ledger technology could solve regulatory problems

Abstract

Distributed ledger technology (DLT) is at the forefront of emerging technologies, and one which we believe has the potential to radically affect and transform not only the financial services industry (FSI), but all industries. Nascent as the technology currently stands, its core attributes have the potential to completely change the way our world works, in the same way that the internet has done. Through 2017–2018, we have interacted with key players in financial services (FSIs as well as regulators) to understand their demands; and explored the financial technology (FinTech) and regulatory technology (RegTech) spaces to find viable solutions in the market. This paper aims to explain how three functionalities of DLT (namely immutability, trade matching and smart contracts) can revolutionise the process of regulatory compliance for FSIs. The authors have included a use case of how an underlying DLT could be beneficial to future proof elements of the regulatory initiative published by the Bank for International Settlements in January 2013 for systemically important banks to improve risk data aggregation and risk reporting (BCBS239).