Mobility Scooters highlights that collective actions must raise common issues, thus placing a focus on the variation in damages across claimants. The MasterCard consumer action highlights the challenge in taking a ‘top-down’ approach (estimating aggregate damages and only subsequently considering how to distribute that amount across individuals) and also the role of individual issues in collective actions. Retailers’ claims in MasterCard make clear the need for courts to pay careful attention to economic analysis, notably in the context of complex settings such as two-sided markets and in deriving counterfactual scenarios. The Consumer Rights Act 2015 (CRA) introduced a new collective action regime to the competition law landscape in the UK, including the ability to bring opt-out actions.1 The defining feature of a collective action is that the Competition Appeal Tribunal (CAT) can consider a collection of individual claims together rather than considering all aspects of every individual claim separately. The UK’s collective action regime aims to facilitate redress for claims that might not otherwise be brought, while avoiding aspects of the US class-action regime. The fact that it can accommodate both opt-in and opt-out claims means it represents a potentially dramatic change in the competition law landscape. Opt-out claims introduce new opportunities for redress for potential claimants and may markedly change the risks and exposure of defendants in cases taken in the UK. Moreover, other member states are likely to draw lessons from the experience and, while the European Commission recommended that member states have collective redress systems by 2015, its recommendation was that they should, as a general rule, be based on the ‘opt-in’ principle.2 The development of the UK’s new regime has therefore potentially very significant ramifications for the approach across Europe. Two cases have so far reached the stage where the CAT has been asked to certify whether the matter can proceed to trial on a collective basis, Mobility Scooters3 and the MasterCard4 consumer case. This article first reviews the core legal test described by the CAT for class certification and then considers the key economic issues at the heart of these cases. The cases relate to two very different types of infringement. Mobility Scooters was a claim following an OFT5 infringement decision that manufacturer Pride had entered into vertical arrangements with eight of its UK-wide online retailers which had as their object the prevention, restriction or distortion of competition in the market for mobility scooters by6 ‘prohibiting the advertising of below RRP prices online in respect of certain Pride mobility scooters between February 2010 and February 2012.’ In the MasterCard consumer case, the claim relates to a finding by the European Commission that the defendant acted unlawfully and in breach of Article 101 TFEU in establishing and implementing certain fees known as Multilateral Interchange Fees (MIFs), which retailers were required to pay on credit and debit card transactions. In addition to the consumer claim, the CAT considered whether an individual retailer suffered damages in Sainsbury’s v. MasterCard, and in the judgement by Justice Popplewell, the High Court addressed at least 12 other claims brought by retailers.7 The consumer claim argues that the MIF was passed on by businesses to all 46.2 million individuals who purchased goods and/or services from UK businesses that accepted MasterCard. To issue a Collective Proceedings Order (CPO),8 the CAT must be satisfied that there is some basis in fact9 which establishes that three individual certification requirements are met, namely:10 The claims must be brought on behalf of an identifiable class of persons The claims must raise ‘common issues’ The claims must be ‘suitable’ to be brought in collective proceedings The CAT describes the first requirement thus: (i) it must be possible to say for any particular person, using an objective definition of the class, whether that person falls within the class; and (ii) that the class should be defined as narrowly as possible without arbitrarily excluding some people entitled to claim.11 Common issues are defined as the same, similar or related issues of fact or law.12 In other words, claims can be efficiently collected together when the issues the court must decide are common to each of the claims. Although the claims must raise common issues, that does not require that all the significant issues in the claims should be common issues13 and the final resolution of the claims will often require the assessment of individual issues.14 It is notable that this aspect of the UK threshold for certification is potentially less restrictive to certification than the US class-action system where common issues must also predominate.15 The CAT Rules describe that assessing whether claims are ‘suitable’ to be brought in collective proceedings can depend on a wide range of factors.16 One aspect is whether the claims are suitable for an aggregate award of damages,17 including whether such an award can be distributed between members of definable subclasses.18 Using language familiar to US class certification discussions,19 the CAT has described that its approach to certification ‘should be rigorous.’20 In practice, the question is how much rigorous analysis can really be undertaken at the CPO stage when ‘[t]he approach under the UK regime of collective proceedings is intended to be very different [from the US], with either no or only very limited disclosure and shorter hearings held within months of the claim form being served.’21 There will clearly be tensions between the desire for a rigorous analysis at the CPO stage and the desire to limit pre-CPO disclosure. More generally, the UK courts have accepted that the quantification of an overcharge always involves estimation,22 and that difficulties in quantifying compensation are to be dealt with ‘by the exercise of a sound imagination and the practice of the broad axe.’23 That said, as Mr Alan Bates vividly described during the Mobility Scooters case, ‘a broad axe is very different from a sort of crazed axeman swinging out all over the place because you do not have the…proper parameters for the exercise.’24 Moreover, Justice Popplewell (while replacing a broad axe with a broad brush) drew an explicit link between the quality of evidence and the appropriate size of a damages award:25 ‘[W]here the court is compelled to use a broad brush in the absence of precision in the evidence of the harm suffered by a claimant, it should err on the side of under-compensation so as (a) to reflect the uncertainty in the actual loss suffered and (b) to give the defendant the benefit of any doubts in the calculation.’ In Mobility Scooters the consumer claim followed an OFT decision that certain vertical agreements infringed Chapter 1 of the Competition Act (1998) since they involved a prohibition on ‘below RRP advertising of online prices’ (BROPA). Claimants argued26 they were harmed by the infringing agreements because price competition was less intense since retailers did not advertise the lower prices they might have absent the infringement, and that retailers either advertised higher prices or they advertised no prices and directed online purchasers towards telephone sales channels—advising them to ‘call for better prices.’ The claimants proposed estimating the overcharge by calculating a weighted average price during the infringement period (February 2010–February 2012) and comparing it to a calculated weighted average price from the post-infringement period (March 2012–December 2014). Claimants argued that prices in physical stores fell on average after the infringement period by 16.2 per cent and attributed that fall to the removal of the infringement. They further asserted that the differential between the two distribution channels (physical stores and online) was the same during and after the infringements so that the overcharge to online customers could also be estimated (see Fig. 1). The competitive benchmark in Mobility Scooters.Note: Author's estimates based on information available in the Mobility Scooters judgement. However, the CAT judgement in Mobility Scooters makes clear that evidence of declining prices alone is insufficient. Instead, the claimant must establish that there is a basis for demonstrating that an observed fall in prices is attributable to the end of the infringements and not to other factors, that is, provide evidence of causality.27 The CAT considered whether any overcharge in Mobility Scooters was a common issue among purchasers. The defendant argued that (i) the loss suffered by each customer would depend on that individual’s purchasing and search behaviour and so the damage caused would not be common; and (ii) that any methodology which allowed damages to be estimated on a common basis would require knowledge of whether a given individual did search the market and/or would have searched the market in the counterfactual. The claimant accepted there was marked price variation across individuals since prices were individually negotiated, but argued that overcharge was nonetheless a common issue. The claimant asserted the extra amount customers paid as a result of the infringing agreements was sufficiently similar to mean overcharge was a common issue, whether or not a given individual paid, say, £1,000 or £750 for the scooter.28 The most significant element of the quantification argumentation during the CPO application in Mobility Scooters related to quantity not price. The relevant quantity depended on whether any overcharge resulting from the conduct was market-wide, or whether it was limited to at most the customers of the eight retailers with whom infringing agreements were signed.29 The claimants submitted that the BROPA prohibition made it harder for consumers to shop around for the best price, and that the infringing agreements meant the competitive pressure on other retailers was absent while the eight retailers (with collective market share of around 15 per cent of sales) were not insignificant.30 the sales an overcharge was thus a issue for This issue also a role in the CPO application since the CAT was required to the relevant claimant in the CPO and subsequently would be required to award any aggregate damages for each The to of customers by (i) sales online per cent of sales) physical stores per cent of and (ii) whether or not customers purchased a that was by an infringing The CAT did these alone could an aggregate damages award since it and is within them sufficiently The CAT was that a different of damage may be to who purchased from the eight retailers and sales from other The application for a CPO was thus with the that a CPO application could be made by the claimants. the claimants their application for a The CAT its judgement for the CPO application in the MasterCard consumer claim in considering the consumer claim for it is to first consider the related claims by retailers MasterCard. This first considers the economic issues in these cases to the particular for economic analysis in the MasterCard consumer damages were for the breach of Chapter 1 of and/or Article 101 TFEU by of the at which the UK Multilateral Interchange or was for MasterCard The CAT and Sainsbury’s million in damages The in below how in card the MIF is per cent and the is per the an for the will and the and the in a card card MasterCard the UK the CAT that to the of than to the of and that would a higher UK MIF have no to in in the can from any such and to the In the would no have a UK MIF and Interchange Fees would have to be between and UK MIF means would have a than in the However, in other the analysis of is In the analysis that (i) have they do not have to issue MasterCard to their have the to between MasterCard, and and (ii) have their must all rather than the sales for no This in should the resulting counterfactual price. It is that the CAT a benchmark from a of in to the on the other that a an would in price in to its only when the other side of the the had all of the In there is marked between the of the analysis of and its to an as the benchmark for counterfactual competitive prices absent the of 12 further claims MasterCard were brought Justice Popplewell in the High Justice Popplewell that the that the counterfactual was not Instead, the there were two potentially relevant the MIF (i) being to or (ii) being to the MIF less than actual MIF and to the court is under Article Justice Popplewell considered whether MIF should be held at its actual in the counterfactual. That might not be the case, for it were on the basis of the infringement decision MasterCard that actual were also that the claimants would need to establish that and were In MIF was then its actual should form of the counterfactual since for the counterfactual is the and the court conduct as and it is to be Justice Popplewell thus that there would be a differential between and MasterCard in the counterfactual. Moreover, counterfactual MIF were while MIF at its actual would have both the ability and to their of from towards and so card would competition from would the It was then a to with MasterCard that its MIF was since it was to the of the MasterCard as a The question of whether prices should be in the counterfactual is a general to consider that the prices by may be it will not always make to price counterfactual and when finding that price would lower in the counterfactual than it was in the The challenge is to how prices would have in a new counterfactual this case, a new in a two-sided market The economic of card prices is best considered within the of two-sided In two-sided the there are on the the is to the other Justice of the economic on two-sided markets is both and In two-sided competitive prices reflect the between they do not reflect the or from side of the competition between can to or no for and fees for This feature was by Justice Popplewell, who described with the benchmark in based approach is not in any of the as any sound and 2015 describe it as by any and as with the whether the judgement the analysis of the of two-sided markets into a the judgement argues that to so competition between card systems to higher that must to and would thus need to The challenge in a competition under Article 101 is to decide the of MIF in of the under and also Justice Popplewell a benchmark price and to it using the best available The analysis that both and of MIF were higher than actual MIF and Justice Popplewell that there was therefore no In the CAT described that the is in not a at the need to that a claimant is sufficiently and not by a the key question relates to the of the actual of the damages suffered by the In the actual of the damages in the CAT consider that the legal definition of a from that of the in two an might to and the is only with identifiable in prices by a to its customers the in price must be with the and The CAT to the tensions between the legal and economic of In the that (i) the or can relate only to identifiable price by a to its and (ii) the price should be each to in for the the definition of with that approach since is defined to which a given change in a given change in is defined The shop was considered by the CAT to whether there were between legal and economic The CAT that a shop at price them to at price and that there was a which the price of say, per of on the higher price to the in the form of the shop to its its The CAT the question of whether the are considered by an since they would not to its definition of In respect of this whether an it or this conduct to the harm suffered from the shop In the shop actions to damage to the damages suffered from the the damage to the actions damage the customers quality of being and there is an potential claimant the conduct the of the CAT a on such in and it would no be to establish in practice, the to to be potentially of such an the of in fact the actual of damage In the CAT the of in to on the its approach to as by a of under-compensation to it considers at least as as the of In the CAT only to on the of the defendant has that there class of claimant, of the in the to whom the overcharge has been passed the defendant that the is on the the of such a class, consider that a of the overcharge by it should not be or on this that under a of definition of which allowed for or this approach would need to be but only to the that the defendant would need to that there other of claimant, and of the in the to whom damage was the the would on the defendant to to the court that the to but not means the damage award should be The CAT and evidence on whether would have in to an overcharge on It that MasterCard had to its of in to the the range of by and the of by Sainsbury’s in it would be to say of the price of any given was attributable to the UK in its the CAT also that there was in respect of In following the claimant should be allowed to actual including a loss of the claim is and The CAT the UK MIF was a common to Sainsbury’s and its consider that a amount of the UK MIF would have been not in a which would have to a of the CAT that Sainsbury’s per cent of the overcharge and so it suffered damage from lower in the and than it would have had absent the infringement. In it on damages based on the of Sainsbury’s that Sainsbury’s did not raise any during the claim and that it was appropriate to award on per cent of Sainsbury’s damages the that were not passed The approach in these two aspects to but the in by defendant and The by Justice Popplewell and the CAT in Sainsbury’s provide context for the decision on whether the requirements for class certification were in the MasterCard consumer In the CAT had to decide whether all of the 46.2 million individual claims ‘common issues’ and were ‘suitable’ to be brought in collective the of the consumer claim, the a methodology which to at a of the aggregate damages award calculated The then proposed a for the aggregate damages across individuals in the aspect of the proposed methodology is in The submitted that the aggregate damages could be calculated by a methodology which involved (i) the of (ii) the and or In of the the proposed using to the of made by consumers using MasterCard credit and debit to businesses in the UK each during the claims the and the across each of of and debit and and the CAT it would be to for each of and the in to Popplewell, in the MasterCard consumer claim the overcharge was to be the between the MasterCard UK MIF and the counterfactual that would have been had there been no infringement, either no MIF at all or a lower of MIF which for under Article The of the relevant counterfactual the CAT be a significant issue in the the application were to In each the economic followed the approach accepted and by the CAT in Sainsbury’s by calculating a weighted average MIF and counterfactual in to the overcharge for each of the of the claim and for each of the of in the There was no that passed on the MIF to in the form of a the question was how much of the was passed on to individual customers The argued that as a matter it was appropriate to a but not over weighted average across the UK That said, the accepted under that will be by such as of and and of regime. The further accepted within broad there was a wide of businesses which may have different of so that for may not be the same as for and that some of the may also across the UK. a weighted average for the of the UK would clearly be the it should be possible on the basis of (a) information from the retailer claims actions (b) disclosure from and available The CAT it (a) the difficulties of from evidence on cases claims made by (b) the and that would disclosure from and the difficulties of and a weighted average were calculated based on the limited amount of available In the CAT that the proposed across the UK over a period of would be a complex exercise to a wide range of It also that a would have had to be made to whether such a is by are the test from the CAT was on the basis of the in of it that there were available for the proposed methodology to be on a sufficiently sound basis, so it was not satisfied that the claims were suitable for an aggregate award of 1 describes aspects of the application which the CAT described would be relevant for an individual claim and, in whether each issue is common across individual claimants. The CAT that the did raise common issues, but that it also issues which were individual in Common and individual issues in the MasterCard consumer claim between different of goods and services between different of in the of sales made by that paid for by card to since the lower the actual overcharge which it has to over the prices of its goods or services between different of goods and services between different of in the of sales made by that paid for by card to since the lower the actual overcharge which it has to over the prices of its goods or services Common and individual issues in the MasterCard consumer claim between different of goods and services between different of in the of sales made by that paid for by card to since the lower the actual overcharge which it has to over the prices of its goods or services between different of goods and services between different of in the of sales made by that paid for by card to since the lower the actual overcharge which it has to over the prices of its goods or services The methodology is not from the of individual claimants but rather is to be ‘top-down’ to the issues by to to of a for all claims. The CAT that this of approach can be but only there is a and means of to the of individual aggregate damage award would need to be distributed across The proposed calculating the aggregate loss on an basis for each of the in the claims period and it on an per basis among all the class members for that of who were in the UK and over the of in that However, when the were asked this by the they that the proposed no to the individual They for that individual would depend on much a given individual on as as across a range of other and so The CAT considered how a loss would be estimated in an individual action for It that since no individual can be to or the of would be on the basis of an assessment of and then a broad of how that was between and and between of It on to say in the is that there is no of a very of the loss suffered by each individual claimant from the aggregate loss calculated to the proposed The CAT that the of the individual issues of the from whom they and the of which they made it to how the to individuals could be on any The application for a CPO was the UK courts have considered the first two collective Mobility Scooters and the MasterCard consumer claim, as as significant related actions for The courts have been asked to consider such as overcharge and in agreements in Mobility Scooters and a two-sided market in MasterCard. In at the CPO application these collective actions have a focus on the and of the variation in damage across claimants. the CAT has the CPO in both of these first two opt-out it does not mean that other cases will not the CAT will need to to consider how a it should place on the claimant a CPO when such must be made on the basis of limited disclosure.
This chapter looks beyond the novelty of self-executing ‘smart contracts’ in blockchain networks and explores developments against the background fact that commercial parties have, for centuries, used documentary credit to simulate autonomous performance. Blockchain-based smart contracts and documentary credit share three core functionalities which are essential to any effective autonomous performance, analogue or digital—they both (i) act through internalized media of exchange; (ii) operate as closed systems; and (iii) provide means of securing sufficient resources to guarantee contractual performance. Using these three functionalities as a framework, this chapter conducts a comparative analysis of mechanisms for effecting autonomous contractual performance in a commercial setting. From this comparison, a few hypotheses are drawn regarding the potential areas where smart contract technology is more likely to find fruitful application. In particular, the chapter considers potential limitations to applying smart contracts to scenarios beyond digital asset transfers, how dispute resolution mechanisms should be designed to complement (rather impair) the autonomous nature of contractual performance under smart contracts, and potential capital cost implications which might arise in some cases when parties seek to replace human intermediaries with smart contracts.
Long Finance identifies an appetite for ‘Smart Contracts’ in wholesale insurance. Sponsored by the London Market Group and conducted by Z/Yen, this research shows there are exciting prospects for the use of smart contracts in wholesale insurance*. The research included interviews with brokers, insurers, reinsurers, regulators and trade bodies from across the sector, together with discussions with technical experts.
Smart contracts translate legal contract terms directly into executable computer code within a business process. This creates a rigorous link between the legal contract and its operational implementation. By enabling closer integration between back office, business areas, and negotiation of external contractual agreements, smart contracts can improve efficiency, reduce errors, and improve maintainability as business, regulatory, and contractual environments change.
The report identifies five broad areas where smart contracts could be applied in wholesale insurance: Process, Product, Portal, Performance, and Privacy. Processes in wholesale insurance are particularly complex, with complicated contracts managed through a network of clients, brokers, insurers, reinsurers, external providers such as loss adjusters, and central market organisations, often crossing and recrossing national boundaries. Smart contracts offer the possibility of making processes more transparent and maintainable, reducing the need for manual intervention and reducing costs and error rates. Smart contracts could also support new product features or allow new classes of products where the risk is defined using complex analysis of ‘big data’. They could support new automated distributed channels for insurers through the use of internet portals, making it economic to transact more standardised products with smaller clients. By guaranteeing confidentiality of granular data, they could facilitate sharing of aggregate data to provide aggregated industry data and indices. They could reduce barriers to sharing They could also be used in the analysis and management of risk and claims, improving overall performance of insurers. Privacy legislation is an important area where smart contracts could help provide ‘smart compliance’ – linking back office processes to the explicit wording of statute and regulation.
The report highlights examples of where individual firms, ‘coalitions of the willing’, or cross market initiatives, could drive specific smart contract applications to provide business benefits.
The following table summarises the potential benefits of each of these five areas, both to Market firms and to clients. The benefits of cost, accuracy, and speed accrue directly to the Market, although the net effects should include at least some reduction of premium costs to the client. Oversight of the market should also be simpler and more effective with better information. ‘Risk management’ refers particularly to preventing losses or mitigating the impact of losses which do occur; it should be a direct benefit both to the firms and to the client. ‘Client facility’ means that the client has the ability to purchase a policy with capabilities or at a price that was not previously available.
The large number of use cases in different areas which we found for STP and smart contracts indicates that these are technologies which could have a strong impact on the London Market over the next few years, and they should be part of the strategic debate within firms and at Market level, such as:
Commercial vehicle fleet insurance with access to client data;
Cybersecurity policy with access to client systems;
Hull insurance with access to telemetry;
Geolocation of shipping containers;
‘Follower syndicate’;
Parametric insurance;
ILWs;
Insuring intangibles with loss defined from Big Data;
War risk on demand;
Generator cover on demand;
Individualised insurance for car hire;
Cyber index and ILS.
There is no simple way to progress smart contracts, given the multi-party nature of the Market, and this report recognises that a core recommendation is that smart contracts remain on the strategic agenda for the Market as a whole and for individual firms for the foreseeable future. Smart contracts will be important for wholesale insurance and need to be part of future discussions and gain the attention needed to be built appropriately into future Market processing architecture. We suggest further development of the ideas surrounding:
‘follower syndicate’ proposal for applying smart contracts;
opportunity for smart contracts in implementing STP for settling payments;
smart contracts for contract wordings;
governance structure for sharing data that feeds smart contracts;
geolocation information feeding smart contracts.
An abundance of new technologies and new technology interactions has created the buzz surrounding ‘InsurTech’, the emerging combination of insurance and technology. Smart contracts are an increasingly popular point of discussion as people realise that computer code can be embedded in distributed ledger technology. Yet, smart contracts do not need distributed ledgers and could promote straight-through-processing (STP) in the London wholesale insurance Market with current technology.
This guide aims to give insurance executives an overview of smart contracts that should aid them in discussions about the technology future of the Market. The guide tries to explain the concept, give a taste of the technology and applications, and look to the longer-term risks and rewards.
Blockchain technology has received a disproportionate share of technology news reporting in recent years. As the database technology that solves the double-transaction problem for cryptocurrencies, blockchain has conventionalised digital ledger technology thinking and is envisaged to represent the future of financial platforms. Smart contract technology, the blockchain containers for processes and rules, is positioned to expedite automation in the post-trade infrastructure of financial systems. \nFintech disruptors discern blockchainÕs potential as a mechanism for disintermediation of the insurance value chain as an opportunity for innovation. Industry counter-measures to this threat include coalitions of financial institutions to evaluate potentially disruptive technologies. The fundamental questions facing the insurance industry are the end-consumerÕs trusting beliefs and propensity to use these emerging technologies in policy servicing systems. \nWe harness technology adoption theories, trust in technology research and the task-technology fit model to measure policyholder perceptions of blockchain among consumers in the life insurance industry. Responses from a sample of life insurance policyholders (n = 199) were used to measure concepts from three IS adoption theories. Our research finds evidence of policyholder trust in the reliability of blockchain technology, an understanding of the benefits of the technology and a willingness for it to be used in policy servicing.
The paper seeks to broaden the legal studies on the sea loan by an analysis of the western legal tradition. It undertakes an attempt to find out whether the Roman concept of the sea loan is applicable nowadays. The revival of an ancient solution is more plausible thanks to the idea of the Project Finance and the ongoing process of the decodification of private law. The ancient legal institution of pecunia traiecticia and the modern idea of the Project Finance are good examples of the legal solutions that existed or exist outside the codified legal structure. A broad insight into the history of the sea loan shows how many different contracts were developed under the influence of the pecunia traiecticia. It was a fact in Roman law, in ius commune and in the common law tradition. The vivid development of contractual agreements concerning risky ventures: both on sea and on land was stopped, however, by the process of codification and by the rise of statutory liens, and insurance contracts. The market of risky investments has started to present a challenge to the process of codification once again in the 20th and 21st century. It has been driven by many soft law regulations and uncodified practical solutions. One of them is Project Finance that today seems to be the legal regulation that is the closest to the Roman sea loan. It is an uncodified way to finance and organize risky investments. The significant decentralization of legal systems in all their dimensions, or even in their breakdown into the independent systems makes the revival of pecunia traiecticia more plausible. It can be a useful, less risky alternative to the instruments of speculative investment, e.g. options contracts, forward contracts, hedge contracts, and a less complicated contract than a set of instruments used in the Project Finance. Flexibility of legal solutions used in the risky ventures, variety of legal sources and the openness to the legal tradition could make contemporary legal systems more just and effective than in the era of codification.
Efficient financial regulation is crucial to the future success of the financial services industry and especially the rapidly evolving new financial technology (FinTech) area. The concept of “algorithmic regulation, ” modelled on “algorithmic trading systems” [Treleaven et al. (2013)], is to stream compliance, social networks data, and other kinds of information from different sources to a platform where compliance reports are encoded using distributed ledger technology and regulations are “codifiable” and “executable” as computer programs, using the same technology being developed for blockchain smart contracts. In this paper, five areas are discussed: a) an “intelligent regulatory advisor” as a front-end to the regulatory handbook; b) “automated monitoring” of online and social media to detect consumer and market abuse; c) “automated reporting” using online compliance communication and big data analytics; d) “regulatory policy modeling” using smart contract technology to codify regulations and assess impact before deployment; and e) “automated regulation” employing blockchain technology to automate monitoring and compliance. We refer to algorithmic regulation for systems that facilitate compliance and regulation decision-making in financial services using advanced mathematical tools and blockchain technology.
Ronny Hans, Hendrik Zuber, Amr Rizk, Ralf Steinmetz
Blockchain technologies paired with smart contracts exhibit the potential to transform the global insurance industry. The recent evolution of smart contracts and their fast adoption allow to rethink processes and to challenge traditional structures. Therefore, a special focus is on the analysis of the underlying technology and recent improvements. Further, we provide an overview of how the insurance sector may be affected by blockchain technology. We emphasize current challenges and limitations through analyzing two promising use cases in this area. We find that realizing the full potential of the blockchain technology requires overcoming several challenges including scalability, the incorporation of external information, flexibility, and permissioning schemes.
According to the World Economic Forum, by 2025 10% of global GDP will be stored on blockchains, a type of decentralised database and distributed shared ledger. Smart contracts are automated computable contracts that are executed in blockchains, with the benefit of removing intermediaries and reducing costs. The use cases in finance include: in cross-border payments, to capture obligations, minimize operational errors and expedite transfers; for property and casualty claims in insurance, to automate claims processing through third-party data sources and codification of business rules; for deposits and lending in syndicated loans, to facilitate real-time loan funding and automated servicing activities without intermediaries; for deposits and lending in trade finance, to automate the creation and management of credit facilities ultimately eliminating correspondent banks; for contingent convertible bonds in capital raising, to alert regulators when loan absorption needs to be activated, minimizing need for point-in-time stress tests; for compliance in investment management, to execute reporting and facilitate the automated creation of periodic filings; for proxy voting in investment management, to automate end-to-end confirmation by the validation of votes, increasing transparency; for asset rehypothecation in market provisioning, to enable the real-time reporting of asset history and the enforcement of regulatory constraints, including facilitating clearing and settlement to eliminate need for intermediaries and reduce settlement time; for equity post-trade in market provisioning, to simultaneously transfer equity and cash in real time, reducing the likelihood of errors impacting settlement.The policy implications introduced by decentralization require that economists and lawyers understand this technological shift, and more importantly, the risks related to tangible (e.g consensus selection as a security choice) and intangible (e.g contract incompleteness/code errors) factors. We demonstrate a decision making method where utility is measured by “levels of trust” using artifacts from fields finance applied to a portfolio of institutional smart contract companies. Expected utility is measured by mapping a demand vector field (the attention level), and funding by plotting a scalar field (the investment level); the associated risk exposure is implicit in the consensus mechanism tradeoffs, according to the progression of firms represented in the system of coordinates. The goal is to provide a device for portfolio analysis and construction. The data comes from a panel of 200 million internet users, and investment databases. The result is a comprehensive and scalable view of decentralised portfolios, inspired in the methods of behavioural finance.
The fundamental issue in monetary theory is whether a capitalist economy is inherently stable or whether, due to its very nature, it is unavoidably unstable. Capitalism requires that financial institutions and instruments exist which permit flexibility in financing. As a result of the existence of financial innovations and learning, the relation between money or the monetary base and economic activity changes. Abstracting from the financial layering process, the fundamental inside asset is the capital stock and the fundamental outside asset is the government debt money supply. An increase in financial intermediation and of government endorsements will tend to raise the price per unit of capital as a function of the outside money supply. The United States &s;Central Bank&s; is a peculiarly decentralized institution. Specialized organizations such as the Federal Deposit Insurance Corporation and the Home Loan Bank Board as well as the Federal Housing Authority are, along with the Federal Reserve System, part of this &s;Central Bank&s;.
The development of cryptocurrency technology has made it possible to transfer value securely and instantaneously without a third party intermediary such as a bank or financial institution. This is an exploratory analysis of where and why this technology has gained traction. In particular, I focus on the hypothesis that the relative popularity of cryptocurrency in Argentina can be explained by the presence of long-term capital controls. To test this hypothesis, I conducted expert interviews with market players. The main conclusion is that cryptocurrency can and has been used to evade capital controls. However, it is unlikely that substantial volumes have been moved via this mechanism. Cryptocurrency’s popularity in Argentina is attributable to more than the country’s history of capital controls or high rates of inflation. Other factors, including tax rate, levels of corruption, and history of multiple exchange rates have also contributed to adoption of this technology in Argentina. I propose further case study research on cryptocurrency in additional countries in order to develop these theories.
Corresponding author: Ode R. Keil, MS, MBA, CCE, President, The Ode Keil Consulting Group, Inc, 20947 Weatherstone Rd, Kildeer, IL 60047. The author declares no conflicts of interest.
The title of this Symposium originally was “Rethinking Financial and Securities Markets.” It is, of course, somewhat presumptuous for scholars to try to rethink financial markets per se. Markets, including financial markets, are driven primarily by supply and demand. But scholars can and should try to influence the future of financial markets by rethinking their fundamental aspects. This Symposium presents work from leading scholars in the fields of law, economics, finance, and accounting. I will try to frame the discussion from the perspectives of these four disciplines. First, however, we need to identify what it is about financial markets that is worth rethinking. I will focus on ways in which financial markets have been changing. They are increasingly decentralized and fragmented. They are increasingly direct sources of firm capital—a process called disintermediation. They are increasingly global. They are increasingly creating funding mismatches, as short-term securities are used to finance long-term capital needs. And they (as well as financial market products) are increasingly complex and obscure to market participants, even with full disclosure. I will refer to these “financial market changes” throughout my talk.
In an earlier article, I argued that shadow banking—the provision of financial services and products outside of the traditional banking system, and thus without the need for bank intermediation between capital markets and the users of funds—is so radically transforming finance that regulatory scholars need to rethink their basic assumptions. This Article attempts to rethink the corporate governance assumption that owners of firms should always have their liability limited to the capital they have invested. In the relatively small and decentralized firms that dominate shadow banking, equity investors tend to be active managers. Limited liability gives these investor-managers strong incentives to take risks that could generate outsized personal profits, even if that greatly increases systemic risk. For shadow banking firms subject to this conflict, limited liability should be redesigned to better align investor and societal interests.
This paper firstly introduces the NRCMS(New Rural Cooperative Medical System) and mainly analyses the problems of the financing system and compensation effect: the first problem is the instability of the reverse fundraising system which goes against stable fundraising system and sustainable development.The second problem,then,is the irrationality of the general allowance mode,such as capital decentralizing,the low single compensation and unsatisfactory effects.As a result,farmers are still likely to get poor again because of some serious diseases.This paper puts forward four measures to make the system more appealing,make the farmers more actively participate in social insurance and finally achieve sustainable development of the system.