Blockchain – Page 6 – FinTech and Blockchain Law Watch

Accenture runs its largest ever fintech accelerator programme in shadow of Brexit

Jan 20 2017

By Cameron Abbott and Allison Wallace

After fielding more than 300 applicants around the globe, Accenture has selected 20 start-ups to participate in its largest ever fintech accelerator programme.

Artificial Intelligence, Blockchain and gamification technology are all key features in this year’s 12-week programme running in London.

By the end of the programme, 8 start-ups will be selected to present at the programme’s Graduation Day to a group of venture capitalists and financial industry executives. All of the start-ups will receive mentorship from representatives of 28 financial institutions.

Accenture’s Tom Graham told Finextra “the transformation requirements that the financial services industry must undertake to remain relevant arguably pose a bigger challenge than the immediate geo-political uncertainty casting a shadow over the industry”.

The Future of Active Funds Part 2: Don’t Just Be an Active Fund …Be a Pro-Active Fund

Jan 17 2017

By Tyler Kirk

2017 will likely be the year of blockchain, and active fund shops should take notice. With over a quarter trillion dollars fleeing actively managed funds, see Part 1, 2016 was a disappointing year for active managers in the U.S. Blockchain’s cost savings might just be what the doctor ordered.

For 7 years the world struggled to understand bitcoin. Bitcoin was introduced around November 2008, declared property by the IRS in March 2014, and declared a commodity by the CFTC in September 2015. With bitcoin no longer novel, 2016 became the gestation period for bitcoin’s more profound invention, blockchain. As 2017 picks up momentum, we will begin to see financial institutions bringing blockchain applications in from the fringes of the industry and revolutionizing the financial markets. Consider the race by banks to patent their blockchain ideas. It doesn’t look like it will take 7 years for blockchain’s potential to become reality.

Building Smart Contracts Trust in 2017-The Lawyer’s Role

Jan 09 2017

By Susan P. Altman

In 2016 we saw a flurry of discussion, a lot of interest, and a little bit of actual experimentation with smart contracts, the computer programs that automatically execute the terms of a contract on a blockchain. What do we need to firmly launch smart contracts into the mainstream and what is the lawyer’s role? A recent article in Coindesk by executives at Tezos argues that we need to conquer three remaining barriers: 1) implementation of formal verification of the smart contract code—a mathematical technique of verifying the integrity of software code; 2) enablement of transparency of the smart contract code by using interpreted code rather than compiled code (a concept meaningful to developers that permits them to more easily inspect code on the blockchain); and 3) development of clear governance mechanisms for the smart contract.

The first two barriers must be solved by software developers. It’s the last item—development of clear governance mechanisms—that will require joining the lawyer’s legal skills with the software developer’s coding skill. Software on the blockchain is immutable, but there has to be a mechanism for correction of the inevitable software error. Here is where the lawyer will tailor the governance processes learned so well in significant outsourcing transactions: governance and committee structure, issue escalation procedures, and change request process. Smart contracts are intended to be part of real contracts, and we lawyers already know the building blocks of well-crafted contracts. Here’s to 2017!

The Future of Active Funds Part 1: Will Blockchain Save Actively Managed Mutual Funds?

Jan 06 2017

By Tyler Kirk

With the rise of passive products in the mutual fund industry, active managers have suffered staggering outflows. On July 9, 2016, Barron’s published an article titled, The Future of Mutual Funds, addressing what Morningstar calls, “Flowmegeddon.” According to Barron’s, investors withdrew US$308B from actively managed mutual funds and invested US$375B into low-cost passive mutual funds and ETFs for the 12 month period ending in May 2016. Focusing on active shops during that same period, the median outflow of the 10 best performers was US$598M and the same for the bottom 10 shops was US$3.8B. Thus, performance alone will not save actively managed funds, costs need to be cut.

On December 13, 2016, the Wall Street Journal reported that 60 mutual fund executives met inside OppenheimerFunds’ Manhattan office to discuss outflows from active shops. Named the “Seismic Shift Senior Leadership Forum, one of the proposed solutions was to reduce fees. Could blockchain be the answer?

In an October 21, 2016 article, Ignites Europe reported that service provider International Financial Data Services (“IFDS”) had carried out a test where mutual fund shares were bought using its mobile application. The transaction was processed, recorded on the blockchain, and added to IFDS’s registry. According to IFDS, mutual funds could cut costs by as much as $100M by distributing shares directly to investors through the blockchain. IFDS could bring its blockchain to market as soon as 2017.

Additionally, blockchain can be used for back-office processes as well as the recording of transactions for compliance and regulatory purposes. Combining blockchain with smart contracts may introduce efficiencies in the sec-lending and repo markets for funds.

Yet, there are regulatory and operational risks. How would funds meet recordkeeping and custody rules? Would no-action or exemptive order relief be required from regulators? Further, cybersecurity and protecting PII will have to be paramount. Nevertheless, in spite of the risks, active shops that implement blockchain operations correctly are likely to see significant first-mover advantages, and they just might discover the right combination of performance and cost savings.

FinTech in Canada – Towards Leading the Global Financial Technology Transition

Nov 15 2016

By Robert Zinn and Jim Bulling

The Digital Finance Institute is a prestigious Canadian-based think tank for FinTech established in 2013 with a mandate to address the balance of innovation and regulation; support initiatives for financial inclusion; and advocate for diversity in FinTech. The Digital Finance Institute also promotes FinTech in Canada through conferences and international alliances; the creation of Canada’s national FinTech Awards; the FinTech Cup, the new university FinTech startup challenge and by preparing research papers on FinTech.

Robert Zinn and Jim Bulling contributed insight and content to the U.S. and Australian FinTech ecyosystems.

To read this publication, click here.

Rometty Touts Transparent Governance for Blockchain

Nov 08 2016

By Susan P. Altman

Ginni Rometty, CEO of IBM, calls for a system of transparent governance for blockchain in a recent Wall Street Journal Commentary. Rometty predicts that blockchain, once widely adopted, will transform the world. She notes what readers of this blog already know, that financial institutions have become the early adopters of distributed ledger technologies. However, blockchain’s potential is much, much greater than in fintech alone. For example, IBM has estimated that applying blockchain to global supply chains could result in more than $100 billion in annual efficiencies. She describes projects in which blockchain is used in car leasing and ride-sharing in order to speed up the transactions and cut out newly-redundant intermediaries like Uber and Lyft.

In order for us to achieve all of the vast potential of blockchain, Rometty argues that the new technology needs a system of transparent governance developed by not-for-profit groups similar to the way the internet was developed in the 1990s. She notes that IBM and more than 600 firms have joined or applied to join the Linux Foundation’s Hyperledger, an open source collaborative effort created to advance cross-industry blockchain technologies. Hyperledger is attempting to create communities of software developers building blockchain frameworks and platforms to ensure the transparency, longevity, interoperability and support needed to bring blockchain into mainstream commercial adoption. Rometty believes this effort will give businesses the confidence to widely adopt blockchain.

Rometty’s final challenge to readers is to ask themselves, are they going to be the disrupter or the disrupted when it comes to blockchain.

Developing smart contracts for the financial services industry

Nov 03 2016

By Jim Bulling and Meera Sivanathan

With promised benefits such as risk reduction (through blockchain execution), cost reduction and enhanced efficiencies it is easy to understand why the use of smart contracts in the financial services industry is highly anticipated.

The Commonwealth Bank of Australia has successfully used smart contracts in relation to trade finance and the ASX is considering there use in clearing and settlement systems. However, before smart contracts can operate successfully, a few factors must still be addressed:

Immutability: ‘Immutability’ is a key feature of a smart contract stored on a blockchain. A smart contract’s program code does not change once stored on the blockchain – in essence it is permanent. While immutability creates certainty in a smart contract, it does not allow for flexibility. Methods to modify and correct terms of smart contracts are being developed.
Due diligence and accuracy: One risk presented by smart contracts is the possibility that the terms and conditions agreed upon by the contracting parties are not accurately programmed in the smart contract code. In this respect, it is likely that the due diligence process for smart contracts may evolve to be collaboration between both legal and IT professionals.
Legal recognition and framework: In Australia, there is uncertainty about enforceability of a smart contract. A hybrid model using smart contracts for verification and performance combined with using traditional contracts to record the terms and conditions of an arrangement could be a possible solution.
Contractual confidentiality: While smart contracts on a public blockchain generally preserve the anonymity of the contracting parties, it is possible that terms of the smart contract, including those that are highly confidential may be accessible to third parties. Possible solutions, such as the use of private blockchains, are currently being explored.

Blockchain Fuels Crypto Valley Zug

Nov 02 2016

By Susan P. Altman

Blockchain startups are fueling growth of innovative companies in the small canton of Zug, Switzerland, dubbed the “Crypto Valley” (and yes, it’s written as “CryptoValley” in German, and not translated into “CryptoTal”). This approximately 20-mile valley between Zurich and Zug is home to the Ethereum Foundation and more than a dozen other blockchain technology companies. Crypto Valley has a long way to go before it catches up to blockchain investment levels seen in Silicon Valley or the other top investment countries of UK, Israel, Sweden, Germany and Argentina. What is driving Crypto Valley’s growth?

CoinDesk reports that the laissez-faire philosophy that makes Swiss banks so valuable is the same philosophy driving the development of Crypto Valley. Switzerland, with its deeply decentralized government, appears to be a fertile environment in which innovation can flourish. For instance, Zug’s local government is experimenting with permitting citizens to pay for government services up to 200 Swiss francs (just over USD 200) with bitcoin. Switzerland has a host of other advantages for blockchain innovation: a stable, neutral political system, low taxes (especially in Zug), a renowned culture of financial privacy, and an available talent pool. It will be interesting to watch whether and how the decentralized political and economic environment of Switzerland accelerates the decentralized promise of blockchain technology.

Blockchain’s Smart Contract Solution Wins EY Startup Challenge

Oct 28 2016

By Susan P. Altman

The world is abuzz with news about blockchain development and technology lawyers need to understand the implications. The rise of smart contracts, or automated implementation of portions of real-life contracts by transferring assets between parties, is one of those interesting implications. A smart contract is neither smart, nor a contract, but can be regarded by lawyers as a technological solution that automates some transfer between parties to a contract, such as payment or release of information, upon the occurrence of a triggering event. At its most basic, a smart contract consists of fixed program code, a storage file and an account.

Recent news about a startup company making headway with smart contract technology development is worth noting. Adjoint, Inc., based in Boston, is trying to market a solution where financial transactions are automated through smart contracts and work with many proprietary interfaces. The solution provides a consensus protocol (a protocol used in blockchain to get all the processes to agree on a specific value for verification) that allows companies to deploy and analyze a network of smart contracts on top of a mathematically verified distributed and encrypted ledgers.

Blockchain 101 for Asset Managers

Oct 12 2016

By C. Todd Gibson and Tyler Kirk

Over the last two years, it has been difficult to attend any asset management-related event or seminar without hearing the term “FinTech,” and in particular, “robo-advice” and “blockchain.” What is apparent, though, is that many industry participants have little understanding of what blockchain technology is and how it works. This understanding is important in order to identify creative ways of leveraging this technology to increase efficiency.

In the October 2016 edition of The Investment Lawyer, K&L Gates partner Todd Gibson and associate Tyler Kirk published an article intended to give those with a limited understanding of blockchain a baseline of knowledge and to provide an update on current trends with respect to the use of blockchain by fund managers and their service providers. In case you missed it, the full article can be found here.

Tag:Blockchain