The blockchain has enormous potential for compliance officers, but rule makers are still struggling to work out how to regulate it.
Recently Gibraltar announced it was becoming the first country to formally regulate the blockchain as it issued licenses to fintech firms which plan to use the blockchain. As it did so it staked its claim to become one of the most favourable environments for blockchain start-ups in the world.
Blockchain start-ups were, according to one official from the Gibraltar Financial Services Commission (GFSC) ‘craving’ legislation as they sought a solid jurisdiction to regulate their fast-emerging sector.
Where Gibraltar leads, the rest of the world is catching up.
Malta followed hard on their heels by announcing their own plans to regulate the blockchain. At the Blockchain and Bitcoin Conference Malta, MP Silvio Schembi said that the Government intended to create a blockchain ecosystem.
They may be the first, but blockchain regulation will be a key issue of 2018. The question will be is just how tough or moderate should regulations be?
Back in November, the European Commission signalled its desire for a light-handed approach based on ‘acceptance and support’, but a high degree of caution.
Speaking at an event in London Sorin Moisa, a Romanian member of the European parliament said there was both “fascination and bewilderment in Brussels with blockchain. Awareness however is growing. There’s a drive to understand, to pilot and experiment, and also to regulate.”
Fascination and confusion
That attitude is common.
Bitcoin and other blockchain based cryptocurrencies, enjoy a higher profile today than they ever have done. The eye-catching profits made by Bitcoin speculators has caught the press’ attention with more and more companies offering opportunities to get in on the act.
It has many of the hallmarks of a bubble, but the truly transformative potential lies with the technology underpinning it all – the blockchain.
The distributed ledger has the ability to make transactions almost instantaneously and cheaply across borders and creates a secure unchangeable repository for information.
It has considerable potential for compliance managers.
By automating the process, it can reduce the risk of errors and provide a clear and easily accessible record of all documents shared.
It’s a useful tool for compliance managers to demonstrate to regulators that they have acted according to the regulations. They can also pinpoint the identity of fraudulent transactions and increase accountability and traceability.
Making it work
Finding a way to incorporate the blockchain, then, is a top priority.
Next year the EU Commission plans to launch an EU Observatory to monitor the opportunities and risks presented by blockchain. It also plans a pilot project focusing on the use of blockchain for financial reporting.
There is widespread recognition of its potential, but it remains little known and much misunderstood. For all blockchain’s success it has a reputation for being a cyber criminal’s dream come true, and while the regulatory environment struggles to catch up, suspicion will inevitably remain.
The task for regulators is urgent, as they seek to develop their understanding of the market. This is likely to be an iterative process and there will be many stages in the transition.
Awareness will be key – both of the technology itself, and the regulatory framework developing around it. Those which can stay up to speed with the development of technology will minimise risk and maximise opportunities.
These insights can provide valuable lessons to the industry as a whole, which is where Enforcd comes into its own. By bringing together news relating to blockchain and regulation, compliance professionals can improve their awareness and, in some cases, see where other organisations have gone wrong.
A quick search of our platform, for example, reveals a list of news stories relating to the blockchain including a handy list of 10 common blockchain mistakes.
There is a huge amount of information available on the blockchain, but it’s not easy to see it all in one place. Enforcd provides an ideal platform to gain insights, spot opportunities and see where others have gone wrong.