colin feely - amazon web services · partial blockchain. bond process. blockchain . tokenization....
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©2019 Grant Thornton Ireland. All rights reserved.
Colin FeelyPartner, Head of Financial Services AuditGrant Thornton
Welcome
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Can Blockchain Tokenize the Funds Industry?
Adrian WhiteGrant Thornton Blockchain Lab
Grant Thornton IF Fintech Series
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Grant Thornton Blockchain Lab
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Grant Thornton Blockchain Lab 2015-2019
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CYBERSECURITY
DIGITALISATION
BLOCKCHAIN
AI & BIG DATAData Management & Analysis, Big Data, Machine Learning, & Deep Learning.
Strategy, training, ideation, Development, Go to Market.
Innovative Approach, Compliance with the most demanding standards.
Strategy definition, modulisation, implementation & Governance
Grant Thornton Blockchain Lab
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Blockchain Financial Credentials
6
International Payments Blockchain Application
Insurance Company ConsortiumBlockchain Network
Financial Markets Liquidiy Solutions
Co-Founder of Alastria Network
AML-KYC BLOCKCHAIN
2015-2019
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Regulatory Entities: Blockchain
7
Data Protection Agency
Spanish Central Bank AML-KYC-Compliance
The National Securities Market Commission
Public Treasurer
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Blockchain Introduction
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Blockchain - is NOT Crypto (or Bitcoin)
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EXAMPLE OF SOMETHING USING BLOCKCHAIN
BITCOIN WAS THE FIRSTCRYPTOCURRENCY
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Today´s financial System
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SellerIssuer
InvestorBeneficiary
Massive network of counterparties
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Today´s financial System
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SellerIssuer
InvestorBeneficiary
No Trust...
... Wait until settlement(T+2, T+3, .....)
Own recordsOwn records
Bank Bank
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Today´s financial System
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SellerIssuer
InvestorBeneficiaryOwn recordsOwn records
Own records
Speed up Settlementoffering clearing:
Bank Bank
Bank
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Today´s financial System
13
SellerIssuer
InvestorBeneficiary
Own records
Own recordsOwn records
Own records
Speed up Settlement offering clearing:
Track the assetsissued (registrar)
Bank Bank
Bank
Bank
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Today´s financial System
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SellerIssuer
InvestorBeneficiary
Own records
Own recordsOwn records
Own records
Speed up Settlementoffering clearing:
Track the assetsissued (registrar)
Custodianfor investor
Bank Bank
Bank
BankBank
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Solution to replace the need for trust
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SellerIssuer
InvestorBeneficiary
?
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Shared records (real time)
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SellerIssuer
InvestorBeneficiary
✔✔ Shared Ledger of Activity
Bank Bank
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Blockchain Network
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SellerIssuer
InvestorBeneficiary
InvestorBeneficiary
SellerIssuer
SellerIssuer
InvestorBeneficiary
✔ ✔
✔
✔
✔
✔
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Blockchain Network
Block 1 Block 2 Block 3
1. Each time a transaction takes place between participants in the network - a copy (hash) of each transaction is listed in a block:
2. When the block is "full" it is then issued to all participants in the Blockchain network...
Trans 1...
Trans 2...
Trans 3...
Trans 4...
Trans 5...
Trans 6...
Trans 1...
Trans 2...
Trans 3...
Trans 4...
3. New blocks are added to the previous chain of blocks for each participant = "Blockchain"
4. Sending / receiving transactions are cryptographically protected. (The process involves "mining"
SHA 256
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Blockchain enables...
1
2
Completely digital representations of value
Controlled by cryptographic keys
Ownership is registered on a (distributed ledger)3
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Smart Contracts
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Before Smart Contracts (...2009-2015)
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SellerIssuer
InvestorBeneficiary
OFFLINE CHANGE OF OWNERSHIP
OFFLINE CHANGE OF OWNERSHIP
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Smart Contracts... 2015 onwards
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REAL WORLDASSET
ATTRIBUTES & TERMS ATTACHED TO CONTRACT
TRANSLATED INTOCODE / RULES
TOKENIZEDASSET
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Smart Contracts... Digital Assets
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SellerIssuer
InvestorBeneficiary
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Stability
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Stabilising Digital currency
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CENTRAL BANK DIGITAL CURRENCIES
UTILITY SETTLEMENT
COIN
EU Central Bank
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Bond Issuance - FCA Sandbox
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Bond Issuance - FCA Sandbox
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Traditional GBP Bond Process
Partial Blockchain
Bond ProcessBlockchain Tokenization
In the second of the FCA´s regulatory Sandboxes, two bonds were issued using Blockchain which were governed by English law. The following entities were involved in the experimental processes: Link Asset Services, LuxDeco, Allen & Ovary, JP Morgan, Nivaura, Moodys.
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Traditional Bond Issuance (AS-IS)
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BondRegistrar
Bond Issuer
NomineeAccount
InvestorBeneficiary
PayingAgent
ClearingHouse
InvestorCustodian
Beneficial Title registered in Clearing Platform
Legal title of nominee registered in Registrar
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Bond Issuance (Partial Blockchain)
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LuxDeco(Issuer)
InvestorBeneficiary
Investor GBP Transaction
TransactionSettlement
in LuxDeco Acc.
LuxDecoSecurityAccount
Investor SecurityAccount
Nivaura Blockchain Offline mirrored process using GBP and real accounts of Nivaura
Offline mirrored process using real document
transfer
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Bond Issuance (Partial Blockchain)
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Tokenized / Digital Money on Blockchain
LuxDeco(Issuer)
InvestorBeneficiary
Investor GBP Transaction
TransactionSettlement
in LuxDeco Acc.
LuxDecoSecurity
Investor Security
• Removal of Clearing Function
Nivaura Blockchain
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Bond Issuance (Partial Blockchain)
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LuxDeco(Issuer)
InvestorBeneficiary
Investor GBP Transaction
TransactionSettlement
in LuxDeco Acc.
LuxDecoSecurity
Investor Security
Nivaura Blockchain
Tokenized / Digital Assets flow on Blockchain
• Removal of Registrar and nominee account
• Removal of Legal Process
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Bond Issuance (Partial Blockchain)
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LuxDeco(Issuer)
InvestorBeneficiary
Investor GBP Transaction
TransactionSettlement
in LuxDeco Acc.
LuxDecoSecurityAccount
Investor SecurityAccount
Nivaura Blockchain
Beneficial and Legal Titles exist in the same place (the Blockchain)
• Removal of Clearing Function• Removal of Registrar
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Bond Issuance FULL Blockchain
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LuxDeco(Issuer) Investor
Beneficiary
Investor GBP Transaction
TransactionSettlement
in LuxDeco Acc.
LuxDecoSecurity
Investor Security
Nivaura Blockchain
In the issuances described here, such aspects were managed through Nivaura’sdigital custody service that enables compliant on-boarding and wallet management.
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Tokenized Bond Process
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BondRegistrar
Bond Issuer
NomineeAccount
InvestorBeneficiary
PayingAgent
ClearingHouse
InvestorCustodian
Beneficial Title registered in Clearing Platform
Legal title of nominee registered in Registrar
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Tokenized Bond Process
35
BondRegistrar
Bond Issuer
NomineeAccount
InvestorBeneficiary
PayingAgent
ClearingHouse
InvestorCustodian
Beneficial Title registered in Clearing Platform
Legal title of nominee registered in Registrar?*
?* ?* ?* ?*
*Change of Functions?1. Registrar2. Paying Agent3. Nominee Account4. Clearing Platform
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Benefits and Challenges
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Beneficial and Legal Titles exist in the same place (the Blockchain)
Blockchain constituted an independent third party, which fulfilled the requirement for third party reconciliation of the registrar
Smart Contracts could allow for functions to be altered / changed /
removed
PRIVACY
SCALABILITY PERFORMANCE
Perceived Benefits Perceived Challenges
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Crypto-Assets
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Crypto Assets
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ESMA & EBAA type of private asset that depends primarily on cryptography and Distributed Ledger
Technology as part of their perceived or
inherent value.
Crypto-Assets Definition
FCAA cryptographically
secured digital representation of value or contractual rights that is powered by forms of DLT and can be stored,
transferred or traded electronically.
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Crypto Assets: Classifications
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Utility tokens:
grant holders access to a current or
prospective product or service but do not grant holders rights
that are the same as those granted by
specified Investments.
Exchange tokens:
These are not issued or backed by any central authority
and are intended and designed to be used as a means of
exchange.
Security tokens:
Characteristics that meet the definition
of a Specified Investment like a share or a debt
instrument
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Crypto Assets: Regulation
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Security tokens:
Characteristics that meet the definition of a Specified Investmentlike a share or a debt
instrument
Crypto-Asset
Regulation?
SECCFTC
HOWEY TEST
1. Investment of Money2. In a common enterprise3. Expectation of Money4. Based on efforts of others
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Crypto Assets: Regulatory Challenges
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1 2 3New Financial Intermediaries
Risk of Fraud& Manipulation
CustomerAgreements
CyberRisk4 5 6
Illicit Payments (AML-KYC)
Regulatory Gap
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Looking Forward...
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Considerations...
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NEW ROLES
GEORGE ORWELL
CODE DRIVEN
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Contact
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Contacts
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Adrian White International Blockchain InitiativesT +34 91 399 41 19M +34 659 63 94 67E [email protected]
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Hesus InomaAssociate Director - FinTech
Compounding effect of Deep Tech in the Funds Ecosystem
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Our Roadmap Today
47
Compounding Effect of Deep Tech
“New Field” - Connected, Open and Sustainable Finance
Survival by Embedding Re-Invention into an Organisation
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“If the rate of change outside exceeds the rate of change on the
inside, the end is near.”
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Big Data
IoT
RPA- ML - AI
DLT & Blockchain
Compounding Effect of Deep Tech – Future Proof Strategy
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https://www.youtube.com/watch?v=NrmMk1Myrxc&app=desktop
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Tokenization Moments Borrowing
Paying
Saving
Investing Protecting
DLT Programmable FS Era
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Accelerated Emergence of Open, Connected and Sustainable Finance Infrastructure
Change in Customer Behaviour
Higher Expectations Seek ExperiencesSeek Convenience
Want to be Empowered More Social
Entrance of FinTechs& BigTech
Advancements in Technology
Change in Regulation & Global
Standards
Big Data IoT
RPACloud ComputingMachine Learning
Artificial Intelligence DLT & Blockchain
5G
GDPRPSD 2
IDD MIFID IIPRIIPsIFRS PEPP
Focusing on different segments of Value Chain
New Business ModelsEffective & Efficient Operations
Executing Data Driven Customer Centric Value approach
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Funds Ecosystem
Investors Investment Managers
Regulator Board of Directors
Fund Administrator
Prime Broker/Custodian
Transfer Agent
Fund
Real Estate
Securities
Data
The Funds Landscape will Change
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Can the Funds Ecosystem be unbundled?
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Real Estate
Securities
Data
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Experience = Brand = Trust = Access
Elegant – Simplistic - Curated Experiences
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Dreams – Behavioural (Cognitive)
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Folio – Themed (Algorithms & Gamification)
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Ant Financial – Leftover Cash Investment (Micro-Investing)
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Survival by Embedding Re-Invention into your Organisation!
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Thank You!
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Reach me on:
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Thank you
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