Blockchain as a Regulatory Solution

(1)

Blockchain as a Regulatory Solution

Suggested Use Case: Qualified Financial Contract Recordkeeping

Online Email:

Website: [email protected]

www.8of9.nyc 917 261 39 01

917 261 39 01 Phone & Fax

Phone:

Fax:

8of9

1115 Broadway 11^th Fl New York, NY 10010 USA

Mary Kopczynski, J.D., Ph.D.

Brendan Roberts, J.D.

Tyler Morris, J.D.

(2)

1

Series Goal

8of9 Will Highlight the Most Prom- ising Blockchain Opportunities in Financial Services

8of9 sees the financial services industry as one that needs a shove into the future. In this series of white papers, we will look at different regulatory issues facing the industry, and show how companies that aren’t scared to innovate, will reap the greatest rewards from embracing technology, especially RegTech.

Everything which becomes commonplace was at one point unknown. If you want to be on the cutting edge of the new norms in financial services, this series will be your guide.

Blockchain as a Regulatory Solution Qualified Financial Contract Recordkeeping

Statement of the Problem

The financial services industry is a paradox.

On one hand, it is an industry where having the tiniest technological advantage can result in massive benefits, be they increased income, decreased compliance spend, or a glowing reputation in the field. Alternatively, it is an industry filled with old stalwarts, who can be resistant to systemic changes, regardless of the promised benefits. This resistance is based on reasonable concerns, including: fear of cost, privacy concerns, and unforeseen risks.

Blockchain is a technology which has already provided a seismic shift to how we think of transactions occurring in commerce. The presence of Blockchain’s electronic ledger capabilities has provided financial institutions (“FIs”) with new perspective on logging and clearing transactions. This white paper will give a brief explanation on the technology and its applications within FIs. One subsection of the financial services industry well suited for adoption of blockchain technology, is regulatory compliance. 8of9 has been on the cutting edge in this arena. U.S. and international regulators continue to add layers of protection to our financial systems, but the institutions are largely using old systems and services to adapt to the new regulations. As new regulations come forth, new technology can be utilized to not only guarantee compliance with current regulations, but to also position FIs to easily adapt to future changes, without massive additional compliance costs.

On October 31, 2016, the U.S. Department of the Treasury published a new recordkeeping rule for qualified financial contracts (“QFCs”). The rule, further discussed in this white paper, presents a possible use-case for blockchain. The rule addresses how to catalog all of a financial institution’s QFCs, to quickly handle if the bank were facing a resolution event. For banks, the problem is how to best compile this information and stay compliant. As addressed in this white paper, a blockchain populated with information generated from smart contracts, is a forward-looking answer that will position banks to quickly adapt to future challenges.

Blockchain as a Regulatory Solution Qualified Financial Contract Recordkeeping

Blockchain… is a forward-looking answer that will position banks to quickly adapt to future challenges.

(4)

Blockchain as a Regulatory Solution Qualified Financial Contract Recordkeeping 3

Blockchain: An Explanation

What Is a Blockchain?

"At its core, Bitcoin is a decentralized protocol that enables exchange of value among parties around the world, giving it the potential to alter the financial services landscape.” This is how Jay Reinemann, the former executive director of BBVA Ventures, described Bitcoin, the leading cryptocurrency which operates on a blockchain, in 2015.

Much has changed since then. People have become comfortable separating the concept of blockchain from the cryptocurrencies that utilize the architecture, but what Reinemann said about Bitcoin still holds true for blockchain as a technology: the nature of its decentralized protocol gives it the potential to fundamentally alter how the financial services industry approaches problems.

Think about the advent of e-mail. The technology enabled everyone to send a copy of a document instantane- ously to millions of people around the world. This creates a problem: the authentication of an original. When you are a person, there is really only one of you. When you have a house, there is only one, unique house. When your identity can be copied, identity theft becomes possible. When your house deed can be copied, it can be used multiple times for leverage in a financial system. Blockchain is a technology that enables a locked-down system of verifying the presence of a single, unique thing. Its applications can apply to the music industry, land deeds, and financial transactions with underlying reference data.

This preservation and validation of uniqueness is a fundamental value of blockchain as a technology, and should be the lens through which every possible application of the technology is viewed. If a process within financial services includes post-transaction validation, clearing, or any other sort of confirmation of identity, blockchains are likely to replace the process over time.

(5)

The basic structure of a blockchain, in as simple of terms as possible, is this: a network of computers which have access to a ledger. This ledger, through complex cryptography, is both incredibly secure, and can be manipulated by any connected computer, without the need of a central authority.

To ensure that every transaction added to the blockchain is legitimate, the entire network reviews each transaction. If, through various algorithmic checks, a majority of the nodes (the term used for the computers/access points to a blockchain) on the network agree that the transaction is authentic, it is added to the end of the blockchain. There is no “master” or “central”

computer. The blockchain does not originate from one set place, nor is there a computer which always makes the final call on whether a transaction is legitimate. This is the key to the decentralized protocol of blockchain. Once on the ledger, transactions are very difficult to alter or remove, because of this collective verification system.

Note that this is a birds-eye view of the basic blockchain structure; the beauty of the technology is that slight al- terations can be made, which drastically change either the function, privacy, size, or volume of the blockchain. Bitcoin, the first user of the technology to break through into the public consciousness, is an example of a public, permission-less ledger. This means that any person or entity is free to exact a transaction on the ledger (“permission-less”), and any person or entity can view the complete history of transactions (“public”). For obvious reasons, these aspects of blockchain are scary to FIs, which is why it is important to understand that there can also be a private, permissioned ledger.

Above: a very simple version of a blockchain. Here, there are nine computers (or “nodes”) which are interconnected. Six of the nine nodes are involved in three different transactions.

The underlying cryptography of the blockchain will verify the legitimacy of the transactions, and if a majority of nodes verify the transactions, they will be added to the blockchain.

This is the key to the decentralized protocol of blockchain. Once on the ledger, transactions are very difficult to alter or remove, because of this collective verification system.

(6)

What Is a Smart Contract?

A “smart contract” is something that has several different valid definitions, largely depending on use cases. Luckily, the definition used most often in the FinTech and RegTech spheres is the most intuitive: a smart contract is a code which presents “a way of using blockchain technology to complement, or replace, existing legal con- tracts.” As JDs/tech practitioners, 8of9 defines a smart contract as: a code or model that mimics the appropriate triggers and outcomes of an agreement. This definition allows us to understand a smart contract as something similar to the traditional definition of a contract.

The key feature to a smart contract is that it is self-executing. That is, the terms agreed to by all involved parties, once verified and fulfilled, will happen automatically, as long as the smart contract exists in a framework which allows for such automa- tion. This is why smart contracts are inexorably linked to the blockchain; the blockchain allows for the automated actions to take place across any accounts linked to the underlying system. Smart contracts, when combined with a blockchain, provide “data chronology and cryptographic immutability”. Accuracy is always a leading concern in reporting and compliance matters; utilizing smart contracts not only adds efficiency to a financial institution’s work flow, it also eliminates the need for certain data reporting safeguards a financial institution may currently have in place. If your data comes from a source you can, without hesitation, guarantee is immutable in whole (the ledger) and in part (every transaction on the ledger), the need for post-collection verification process- es are eliminated. The value of smart contracts and blockchain technology is that the

“will be done” is the same as “what is done” in a transaction and it eliminates the need for regulators to discern the intent from the actual transaction.

The Shifting Definition of Smart Contracts

● While this white paper uses a definition of smart contract which closely mirrors how legal contracts function, it’s important to re- member that this isn’t the only definition!

● Smart contracts can also refer to the actual mecha- nisms within a blockchain code. This version of smart contracts does not neces- sarily refer to any relationship between different parties.

● These types of smart contracts can automate actions on the blockchain stem- ming from other, user- created actions. For example, a blockchain can automate the process of producing copies of documents after certain events occur.

(7)

The beauty of this function, in terms of RegTech, is that because smart contracts self-execute within a framework agreed upon by the system infrastructure and the parties to the contract, the executed contract can be compliant with reporting standards before it executes. Compliance, therefore, is ensured by execution.

The self-executing nature of smart contracts on a blockchain have potential applications for FIs adapting to new regulations. The 2016 QFC recordkeeping rule, for example, requires a large amount of counterparty information. Main- taining compliance using traditional methods requires work hours to be spent communicating with the other side, up- dating databases with the required information, and continually verifying accuracy. With smart contracts, a QFC would not be executed until all required reporting information is present. That is, every field in the QFC recordkeeping rule would exist as a field in the QFC smart contract, and the contract would not self-execute until all fields are populated.

With this format, both sides guarantee and automate their compliance with the recordkeeping rule, as all information in all tables of the rule are present at the time of execution.

The 2016 QFC Rule

QFCs, Defined

On October 31, 2016, the Treasury Department adopted final rules on Qualified Financial Contracts Recordkeep- ing Related to Orderly Liquidation Authority (the “QFC Rules”). The QFC Rules essentially support U.S. financial stability by enhancing the resolvability of very large and complex FIs. In other words, the regulators post-crisis wanted to see to it that another Lehman-size bankruptcy wouldn’t lead to financial contagion and the demise of the global economy.

But first, what exactly is a QFC? The formal definition is long and cumbersome but in short, a QFC is made up of securities contracts, forward contracts, repurchase agreements, and swap agreements, as well as any modifying contract to that original contract.

With respect to the regulation of QFCs, the Federal Reserve’s Form FR 2004 (Government Securities Dealers Reports), listed the total amount of repos that primary dealers entered into for the year 2015, at $2.2 trillion in repos and just under $2 trillion in reverse repos. Massive amounts of money are moved through the global economy each year via QFCs, making it evident that QFCs are systemically important and require regulation in order to maintain U.S.

financial stability.

(8)

 The QFC Recordkeeping Rule sets out to keep track of all outstanding contracts related to certain types of transactions.

 While the web of relevant contracts can be overwhelming, the bottom line is that repurchase agreements, swap agreements, and any contract dealing with equities, commodities, or forwards are QFCs. Then, any additional contract built upon that base QFC also must be tracked, including any options on the QFC.

The Tangled Web of QFCS

Who is Affected by the Rule?

The QFC rule identifies four different groups that are subject to the rule. FIs which:

1. are determined pursuant to section 113 of the Dodd-Frank Act to be an entity that could pose a threat to the financial stability of the United States,

2. are designated pursuant to section 804 of the Dodd-Frank Act as a financial market utility that is, or is likely to become, systemically important,

3. have total assets equal to or greater than $50 billion, or

4. are a party to an open QFC or guarantees, supports, or is linked to an open QFC of an affiliate and is a mem- ber of a corporate group within which at least one affiliate meets one of the criteria in (1), (2), or (3), will be subject to the QFC record-keeping requirements.

Essentially, if you are a giant bank, or have an open QFC with a giant bank, this rule is something of which you need to be aware.

(9)

The proposed compliance period for many FIs that are subject to the QFC Rules is relatively short. For FIs that become subject to the rules after they become live, compliance with the point of contact requirement would have been required within 60 days, and compliance with all the other requirements of the rules would have been required within 270 days, after the financial institution becomes subject to the QFC Rules.

Based on the proposed compliance period, commentators have submitted that the period would be an insufficient amount of time for implementation and suggested that compliance should be in stages, with staggered compliance dates for different types of QFCs or for FIs based on the size of their QFC portfolios.

The Treasury Department responded in the final rules [on date] by providing additional time to all FIs to comply with the requirements of the rules. FIs will now have 90 days to comply with the requirement to provide point of contact information to their primary financial regulatory agencies and the Federal Deposit Insurance Corporation (“FDIC”) after the effective date of the rules. “As to the remainder of the requirements of the rules, the QFC Rules provide staggered compliance dates that will provide all [financial institutions] with additional time to comply with the recordkeeping requirements. This means that FIs with $1 trillion or more in total consolidated assets and the financial company members of their corporate group will have 540 days to comply with the rules after the effective date.

(10)

Why is the Rule Necessary?

The Treasury Department implemented the QFC Rules because US global systemically important banking institutions (“GSIBs”) conduct a large volume of transactions through contracts that are interconnected. The issue is where a contract between GSIB 1 and GSIB 2 can cause other legal entities to be roped in to the consequences, which could lead to contagion that impacts GSIB 3, then 4, then the rest of the global economy. A mass termination of QFCs generally would “lead to the disorderly unwind of GSIBs, spark asset fire sales, and transmit financial risk across the U.S. financial system”—in other words, mayhem, and a total global financial crisis. Under the QFC Rules, U.S. GSIBs and the U.S. operations of foreign GSIBs are required to amend their QFCs for common financial transactions to prevent the cancellation of the QFCs if the firm enters bankruptcy or a resolution process.

The QFC Rules are necessary because these changes would reduce the risk of a run on the solvent subsidiaries of a failed GSIB caused by many firms ter- minating their financial contracts at the same time. In essence, the QFC Rules would prevent a “domino effect,” where one failed GSIB’s subsidiary would cause a healthy subsidiary of the same GSIB to “fall” due to the termination of their financial contracts. During a period of systemic failures, as the economy experienced in 2007, solvent subsidiaries existing under the same umbrella as another institution having insolvency issues may see their QFCs cancelled by counterparties who become anxious and uncertain. This creates the risk of a knock-on effect, where the insolvency of one subsidiary creates a perceived risk in other subsidiaries, and this can ripple across the industry.

(11)

Figure One:

Before the Storm

Here, we have a QFC be- tween a wealth manage- ment subsidiary of Bank A, and the head office of Bank B. They are the on- ly material legal entities

to the contract.

Figure Two:

Aftermath

Now, an investment bank subsidiary of GSIB A has failed a liquidity measure.

Based off this news, GSIB B panics, and cancels their QFC with the wealth

management subsidiary.

As seen above, if a financial institute’s subsidiary runs into liquidity issues, and the FDIC doesn’t have the oppor- tunity to halt counterparties from cancelling their QFCs, there is a risk of a domino effect, with cancelled QFCs affecting the market as a whole. This systemic risk is at the heart of the rule.

The QFC Rules essentially require GSIBs to ensure that their QFCs restrict the ability of counterparties to termi- nate the contract, liquidate collateral, or exercise other default rights based on the resolution of a GSIB affiliate. Overall, by having these QFC Rules in place, the terminations of QFCs will be regulated and there would be a decrease in financial risk across the U.S. financial system.

(12)

Pain Points in Managing QFC Data

An Overall Ledger

The recordkeeping requirements for QFCs prove to be problematic for FIs. There are three major paint points that should be addressed. The first major pain point is that the recordkeeping requirements require a single ledger for each financial institution. FIs that are organized through multiple subsidiaries must maintain their QFC positions as a single entity. Essentially, GSIBs will need to centralize their QFC recordkeeping, regardless of whether their corporate structure calls for a centralization of data. The FDIC will want to request a single ledger from each GSIB. GSIBs will likely have to create new data streams between their subsidiaries to be compliant with the new recordkeeping requirements. GSIBs that are subject to the intermediate holding company rule should also consider making QFC recordkeeping part of their restructuring plans. GSIBs that are not subject to the intermediate holding company rule will likely have to independently create a solution.

Here, we see how a mock internationally headquartered GSIB would have to collect their QFCs under the rule. All required QFCs from all subsidiaries required to report under the rule would be centrally held, even if every subsidiary otherwise has functional autonomy from the GSIB headquarters.

(13)

Counterparty Information

The second major pain point involves counterparty information. FIs that are subject to the new recordkeeping requirements must maintain certain information on the counterparty to the QFC. Notably, much of the information required by the QFC Rules are not necessary to closing a QFC, such as counterparty contact information. While you might not need to jot down the counterparty’s contact info at the time you sign the contract, the US government wants you to be able to access that data quickly if your bank were to go into resolution.

Essentially, GSIBs will have to manage the information of the counterparties to a QFC, regardless of whether or not that information is a prerequisite for the deal getting done. The information being managed may be readily available at the time of the contract’s creation, but may be difficult to update, maintain, and validate during the life of the QFC.

Data-Specific Issues

The third major pain point involves granularity. The new QFC recordkeeping requirements will involve the collection of a huge number of data points. Currently, trades can be completed without the necessary data being stored because most data points are not essential or unknown to a QFC at the time of the trade, as discussed above] GSIBs will need to change their systems to make sure data is captured and stored at the time a QFC is created. Moreover, hosting data is difficult, regardless of when data is captured, because there are thousands and thousands of new data points that internal GSIB IT systems need to be prepped for increased storage and organization demands. Through years of M&A activity, technology changes, and changing data management requirements, GSIBs have complex storage systems for legal documentation that do not lend themselves to easy data centralization. In some cases, legal documents are still stored in paper form, only to be found in a filing cabinet in a lawyer’s office. For these institutions, going from zero digital data centralization, to needing to collect and standardize all QFC data from every subsidiary, is a monumental task.

Required Data for QFC Recordkeeping Compliance:

Position Level - 31 Data Points Corporate Organization - 12 Data Points Counterparty Netting Set - 24 Data Points Counterparty Data -12 Data Points

Legal Agreement - 20 Data Points Booking Information - 7 Data Points

Collateral Detail - 15 Data Points Safekeeping Agent - 7 Data Points

(14)

This shows three QFCs made between six separate material legal entities. Of these six entities, four are subsidiaries of G-SIBs, meaning they must record in compliance with the QFC Rule.

1. Multiple instances of redundant data is collected by both parties to the contract.

2. Data required by the rule is granular, and all the data is not generated at the time of contract creation.

3. Subsidiaries of G-SIBs must independently report QFC data up the chain to generate the overall ledger.

4. All G-SIBs must generate their own report, creating independent compliance costs.

(15)

Solutions

Industry-Wide Recordkeeping

Applying our outline of blockchain and smart contracts to the compliance demands presented by the new QFC rule, we can begin to see how this technology can ease compliance with the rule. At the heart of the rule is the regulators’ desire to have a complete snapshot of a financial institution’s QFC footing, if that institution were to enter receiver- ship. Imagine if all the QFC agreements had occurred using smart contracts on a permissioned blockchain. The FDIC can exist as a single node, who may request a report from the FIs under the same conditions which necessitate a report under the new rule. In this scenario, all the compliance work demanded by the rule is nullified because the blockchain provides systemic compliance.

Admittedly, the scope of this suggestion is vast. To go from our current model of creating QFCs, to one where all QFCs created by banks subject to the recordkeeping rule occur on a single distributed ledger, would be a monumental restructuring of our financial system. But financial systems always eventually catch up to technological changes, and those who beat the market to changes often reap the greatest rewards.

When fully realized, the optimal model would be a private, permissioned distributed ledger, with all trading members having access to sign QFCs with counterparties on the ledger. The QFCs would be agreed to in traditional legal contracting language, but the presence and identity of that contract would exist in blockchain form. This form would only execute and hash when all reportable fields under the new QFC recordkeeping rule were present. Once hashed, the contract would be added to the ledger, and any data connected to the QFC rule would be encrypted with a hash. During all of this, the regulators will also be present on the blockchain, existing as a regulatory node. The regulators would only be allowed to view data from the blockchain when they have grounds to request said data under the QFC Rules. In other words, only when an entity were to go into resolution. They would not be able to see contracts as they are signed, nor have access to certain data points which may nega- tively affect the market or individual counterparties, if publicized.

To be clear, this is not a “smart” contract in

the traditional sense. It is simply the digiti-

zation of the verified identity of a contract

between two parties.

(16)

Above, all material legal entities present in our initial QFC scenario are again present. Likewise, the same QFCs between the same entities are present. But now, all of them exist on a blockchain.

“Counterparty info” no longer exists. All data required under the QFC Rules is now a required field for a QFC to successfully hash and save to the chain; both parties provide their own data.

Similarly, because the reportable data points are now requisite data to contract creation, there is less compliance demand due to the level of granularity.

Corporate structures are part of the code, so QFCs made by subsidiaries are automatically tied to their G-SIB.

Regulators have a node on the chain, and can generate reports, eliminating certain compliance spend.

(17)

With this model, the pain points discussed earlier are largely eliminated.

Counterparty information, for example, ceases to exist. In a distributed ledger model, both sides to the contract come to the table needing to provide all information necessary to complete the counterparty information for the other side. The rules of the blockchain could set all reportable fields as a requirement for a QFC to be signed.

This model also frontloads the pain point of granularity; all required data points of the regulation are provided at the time of contract creation, and each party is responsible for their own data. There is no post-facto hunting down counterparty information.

Lastly, the issue of data volume is likewise eliminated. With an immutable distributed ledger, the data exists in its pure, original form on the blockchain, and not in thousands of redundant spreadsheets and databases throughout the different banks of the world.

Meanwhile, corporate structures can be baked into the code of the blockchain.

The hierarchy of banks can be known to the system and the regulators, meaning that the pain point of a single overall ledger for every financial institution, also vanishes.

The blockchain would know that, for instance, JP Morgan Wealth Management and JP Morgan Investment Banking were subsidiaries of the same organization, and if a regulator were to ever generate a report on JP Morgan Chase, the ledger would intuitively include all its various subdivisions. There is already a network of blockchain startups who independently verify and permission users of blockchains, whose technology a blockchain consortium could leverage to make such a QFC recordkeeping ledger.

This model encompasses compliance within the transaction, and it is a concept which will only grow in support in the coming decade. The relationship between regulators and those companies which they regulate, will continue to grow closer, as both sides see the benefit of moving compliance measures earlier into the time stream of transactions.

(18)

Mimicking a Distributed Ledger Internally

All the above is predicated on a significant number of market players agreeing to adopt a new technology. That level of united decision-making is, suffice it to say, rare. However, decision-makers at FIs should not dismiss the idea of applying blockchain technology to compliance concerns simply because it is unlikely that the industry will coalesce around a platform. Everything discussed above can be replicated in a “walled garden” blockchain, which is an internal ledger kept by a single financial institution, distributed between all their various QFC-producing subsidiaries.

In the walled garden, the other side of a transaction is replaced by a “controller”. This is a fictional entity which, stands in the shoes of the actual counterparty to the QFC which a subsidiary executed. Once the QFC is executed by a subsidiary, the transaction is duplicated on the internal blockchain. The subsidiary executes a smart contract with the controller, which looks identical to the smart contract hypothesized earlier on the distributed ledger. All data points required to be reported to regulators will exist, and the smart contract will not hash without missing data fields. This ensures that the record being kept by the financial institution is compliant with all required data points.

3rd Party

G-SIB Wealth M’gmt

G-SIB Private

Equity

Ledger Controller

G-SIB’s Internal Ledger

QFC

1. Individual MLEs of a G-SIB complete QFCs as usual with third parties. The G-SIB has instituted an internal policy requiring collection of all reportable QFC data, at the time of QFC completion.

2. The QFC between the G-SIB subsidiary and a third party is duplicated internally, with the ledger controller standing in the shoes of the counterparty.

3. When all reportable fields are present, the smart contract is hashed, and is added to the G-SIB’s internal ledger.

4. The internal ledger can be reported to a requesting regulator at a moment’s notice.

2

3 QFC 4

1 QFC

QFC

(19)

The result is a financial institution which maintains a central ledger between all of its QFC-creating subsidiaries, populated with compliant data, in a structure where, if a regulator does request an up-to-date ledger, can easily be generated with current and compliant data. This is especially helpful when data secrecy laws apply, such as the laws found in Singapore and Switzerland.

Smart Regs and the “RegChain”

Yes, there are smart contracts. To reiterate, neither of our blockchain QFC suggestions assume QFCs will be put into smart contract format. Why? Because these are the world’s most complex contracts and in our opinion, it will be at least 5-10 years before we can automatically anticipate all the possibilities in a mechanical artificially intelligent way.

But in the same way that this paper suggests that FIs will begin to frontload their compliance efforts via technology, we also believe that the regulators will begin to do the same. Let’s call them Smart Regs. Smart Regs operate on the same concept of RegTech, where FIs turn compliance workflows into code. But instead of FIs adapting to what the regulators make, Smart Regs will be the regulators crafting ways to stabilize the financial industry by leveraging the new data structures that are being created. New regulations can be created with the knowledge of all the new technology in the field, with very clear guidance on how to be compliant.

For instance, there could be a “RegChain”. This would be a government-created blockchain which creates a standardized data structure for all participants. All the blockchain structure discussed earlier in this paper still applies.

The blockchain would create an immutable data stream through which FIs can submit requested data to the regulators, substantially reducing compliance costs.

The benefit of this system becomes clear when you realize that everything in this paper is based around a single QFC recordkeeping rule. The QFC Rule is far from the only regulation which affects the actual QFCS we have discussed.

There are numerous other rules around repos, swaps, and options on those repos and swaps which are just as important to global regulators. The RegChain would provide an environment for all of those regulations to be managed, as all necessary access points to FI data would be included. The RegChain would be crafted in a way to allow for optimal management. Regardless of the speed at which Smart Regs develop, 8of9 will be there, whether it be assisting regulators in creating the systems, or supporting FIs in adapting to the ever-changing regulatory landscape.

(20)

Conclusion

It is a certainty that the financial services industry will be shaped by new technology in the years to come. Like- wise, blockchain already has proven use cases, and its influence on the greater finance world will continue to grow. The sort of deals which create qualified financial contracts are already created in an environment which is readily adaptable to a blockchain infrastructure, as this paper shows. Blockchain eliminates reporting redundancies, streamlines in-house bookkeeping, and allows for a more efficient market to be created between the institutions who create QFCs. Most im- portantly, it creates an infrastructure which considers the regulatory needs at the outset, and allows for regulators to access data in an unobtrusive manner without adding an additional cost to FIs. Setting this baseline infrastructure allows FIs to expand their practices in the future, open new market opportunities, and be at the forefront of the next generation of technology in finance.

Address:

1115 Broadway 11^th Fl New York, NY 10010 USA

Online Email:

Website: [email protected]

www.8of9.nyc 917 261 39 01

917 261 39 01 Phone & Fax

Phone:

Fax:

Blockchain as a Regulatory Solution