Golden Copy: Looming Blockchain and Disclosure Mountains

Importance of interoperability rises as distributed ledger uses expand; GDPR rules have a broader aim

michael-shashoua

Fragmentation of the distributed ledgers that comprise blockchain raises the importance of interoperability, especially with new uses for blockchain on the horizon. Also, thoughts on European data privacy aims

Although I hadn't quite taken this tack or angle at the time, when reporting what led to a 2014 column about bitcoin and blockchain, it was evident that supporters of the technology saw its potential as a new global standard for financial industry transactions and information.

Nearly two years later, the industry is very obviously catching on to that potential, as Inside Reference Data and our sister site, WatersTechnology, have been reporting. There is more on that front our May issue, in "Blockchain's Pivotal Moment," and what's notable in this report is just how quickly fragmentation has occurred when it comes to trying to set standards for the distributed ledger technology (DLT) at blockchain's core. Keeping blockchain records and information consistent is already a tall order, with the inherently fragmented nature of its distributed ledger technology. Still more hurdles to standardization and consistency have emerged-namely reconciliation issues already existing with reference data, as DTCC technology executive Robert Palatnick says, as well as the emergence of numerous blockchain ecosystems in different markets, as described by Northern Trust's Justin Chapman.

So, firms will have to think about interoperability when developing any blockchain solutions, as ING's Jurgen Vreogh concludes. Aside from setting a standard, especially an interoperability standard, a consistent core of centralized data is necessary as a foundation for working with blockchain, as MUFG Canada Branch's Ron Lee says in this month's "Interview With." Lee's firm and others are thinking about extending blockchain into other data management functions, and corporate actions is just one of the functions being explored.

Without an industry standard, for blockchain to even reliably handle keeping a record of data or transmitting data from transactions is going to be difficult, and far from the ideal its earliest proponents may have imagined. If firms and service providers start using blockchain as an engine for all sorts of financial industry functions and operations, that could result in a massive headache from a lack of compatibility between various data operations.

Lastly, in a recent online column, I called certain positions set forth separately by European regulators in MiFID II and GDPR (General Data Protection Regulation) contradictory. This issue contains a closer look at GDPR, which places its rationale more in line with an effort to increase firms' accountability for investment decisions and how carefully records of those decisions are created and preserved.

While GDPR requires firms to get consent from clients to access and use personal information-separately for each distinct transaction-the European Commission may want firms to then use the entity identifier and other pieces of information they get to ensure client investments are protected, as demanded in MiFID II, as well as to aggregate risk data and determine risk profiles in compliance with BCBS 239. It is contradictory to require consent to disclose data from one set of market participants but demand the same kind of data be disclosed by others, but the aim of GDPR does still fit into overall European Commission financial regulatory goals.

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