Commonwealth legislation should not only be published in words but in machine-readable code, which would allow it to be read not only by lawyers but also computers, a move CSIRO suggests will boost the adoption of new regulatory technology across the economy, improving compliance while reducing costs.
CSIRO detailed its vision for “rules as code” in a submission to the Senate select committee on financial and regulatory technology, calling for the government to think more about ‘legal informatics’, or ‘computational law’, to allow computers to help automate compliance. This would “reduce the cost of red tape and improve the quality of risk management in society,” the science agency said.
“The goal is that computer-assisted reasoning using these logics should give the same answers as judges and lawyers doing legal reasoning about the black-letter law,” CSIRO said. “When legal texts can be represented in this way, it enables the potential to build digital tools to help people to interact with the law.”
The banking industry – which has faced soaring compliance costs in the wake of the Hayne royal commission – has been wary about adopting new technologies in compliance. This has been due to the complexity of regulation, a reluctance by regulators to endorse a specific technological approach, and heavy sanctions for failures. This was evidenced by AUSTRAC’s legal actions for anti-money laundering failures at Commonwealth Bank and Westpac, which both related to failures in technology systems.
The big banks want Treasury to encourage the financial sector regulators ASIC, APRA and the Reserve Bank, “to make regtech a viable proposition in the financial services sector”.
Many start-ups, along with more established technology vendors, are developing new systems to help banks meet legal duties, including establishing the identity and background of customers, ensuring legal compliance, verification of income and expenses, and data privacy. Juniper Research expects global spending on regtech to rise from $US25 billion ($37 billion) 2019 to $US127 billion by 2024.
‘Rules as code’
CSIRO, which operates a digital innovation arm known as Data61, has detailed to the committee how a “rules as code” approach could lift compliance with various laws.
It is working with PwC on a joint venture called PaidRight to check employees’ entitlements under enterprise bargaining agreements against what they have actually been paid.
The banking industry and CSIRO are working on a project to develop a digital approach to organising climate change disclosure, which CSIRO said could be “a first step towards a nationally coordinated framework for delivery of climate information”.
The agency is also working with the building and construction industry to automatically check Computer Aided Design (CAD) models of buildings against the many building and construction regulations from the federal and state governments.
Publishing machine-interpretable rules alongside the text of legislation would “provide critical support for the regtech industry and potentially significant productivity benefits for regulated industries in Australia,” CSIRO said.
The Australian Banking Association called on the committee, which is being chaired by Liberal Senator Andrew Bragg, to recommend that Treasury “be explicitly tasked with responsibility for a growth strategy for regtech”.
Design box thinking
The RegTech Association, which represents 110 start-ups and corporates, suggested the committee call for the creation of a COAG-style forum to introduce government departments to regtech, and is encouraging government to become an “influencer, buyer, beneficiary and investor” in the space.
In its submission, the association suggests a percentage of regulatory fines paid by banks could be invested in a new ‘patient capital’ investment fund to invest in the sector, modelled on the Australian Medical Research Future Fund. It also reckons a safe harbour, or relief program, could be created to provide reporting entities attempting to deploy regtech with more confidence to adopt changes, via amendments to ASIC’s regulatory guidance.
The association also wants government to create “design box” or “sandbox” programs to accelerate testing of new technologies. It pointed to the APIX Platform, part of the ASEAN Financial Innovation Network and backed by the Monetary Authority of Singapore, which has created a marketplace for financial institutions to exchange ideas with fintechs on better ways of doing things.
“Australia could easily replicate this idea of a digital marketplace or partner to introduce a similar platform,” the association said.
“It could allow buyers and sellers to come together to experiment more easily, allow greater visibility over regtech solutions, help regtechs understand the current problem statements of their potential clients, and allow a ‘design box’ where negative assurance could be provided by regulators as observers. Over time the digital marketplace could also be a portal for talent and skill recruitment.”
Separately, CSIRO responded to an accusation in the submission by FinTech Australia to the inquiry which criticised Data61 for “competing directly with private enterprise for government and non-government work”. In a statement, CSIRO said it “does not seek to compete with the private sector or start-ups and where possible aims to partner with Australian organisations, to support their growth.
“Like many of CSIRO’s business units, projects for Data61, the digital innovation arm of CSIRO, are typically identified as a result of discussions with, or approaches from government, industry or academic partners, where an opportunity has been identified for our research to be applied to solve problems and create benefits for Australia.”
First, the third quarter saw growing awareness of perhaps the biggest clampdown on virtual asset transactions to ever impact crypto exchanges as well as banks and other financial institutions. After months to absorb its implications, these businesses are coming to grips with the fact that in just seven months they will need to comply with the so-called FATF funds Travel Rule. In a major challenge to business models and user privacy, among other changes this rule requires virtual asset service providers (VASPs) to securely transmit (and store) sender and receiver information whenever cryptocurrency moves. At the same time, US regulators emphasized that a similar Travel Rule which has long applied to fiat funds transfers—also applies to cryptocurrency transactions. This has left firms struggling to find a technical solution in time to avoid potentially severe penalties or blacklisting. It will no doubt have implications as regulators seek to have KYC information shared globally.The Blockchain Security Company
- Earning interest on crypto asset holdings has become easier than ever, thanks to the Compound protocol and DApps like Dharma and Celsius.
- Converting your ETH to other Ethereum tokens can be done securely and privately decentralized exchanges such as Uniswap or IDEX.
- Hedging your cryptographic asset portfolio is now possible thanks to decentralized derivatives trading platforms, such as dYdX.
- Insuring yourself against the failure of smart contracts has become possible thanks to Nexus Mutual.
- Betting on the outcome of elections, sporting events or whether John McAfee’s bitcoin price prediction will come true can be done on prediction markets platforms, such as Augur.
- Storing funds in crypto-backed stablecoins during times of extreme market volatility is now as easy as buying DAI.
Discussions of cryptocurrencies and other blockchain technologies are bedeviled by a nearly universal assumption that attributes that are possible to achieve in theory are guaranteed to be realized in practice. Examples include decentralization and anonymity.Back in June David Gerard asked: How good a business is running a Lightning Network node? LNBig provides 49.6% ($3.7 million in bitcoins) of the Lightning Network’s total channel liquidity funding — that just sits there, locked in the channels until they’re closed. They see 300 transactions a day, for total earnings on that $3.7 million of … $20 a month. They also spent $1000 in channel-opening fees.Even if the Lightning Network worked (which it doesn’t), and were decentralized (which it isn’t), Gerard’s point was that the transaction fees were woefully inadequate to cover the costs of running a node. Now, A Cryptoeconomic Traffic Analysis of Bitcoin’s Lightning Network by the Hungarian team of Ferenc Béres, István A. Seres, and András A. Benczúr supports Gerard’s conclusion with a detailed analysis.
HSBC aims to shift $20 billion worth of assets to a new blockchain-based custody platform by March, in one of the biggest deployments yet of the widely-hyped but still unproven technology by a global bank.
The platform, known as Digital Vault, will give investors real-time access to records of securities bought on private markets, HSBC (HSBA.L) told Reuters, and seeks to capitalize on booming interest in such investments by yield-hungry investors.
Banks steer clear of Facebook’s Libra project Traditional lenders are working on their own faster, cheaper payments projects Facebook’s Libra threatens to break down banks’ role as gatekeepers of the global financial system © FT montage Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) Save Save to myFT Laura Noonan and Robert Armstrong in New York, Nicholas Megaw and Stephen Morris in London 12 HOURS AGO Print this page41 US and European banks are steering clear of Libra, Facebook’s project for a new cryptocurrency, for fear of antagonising regulators and cannibalising their own digital currency projects In the two weeks since Facebook announced its plans for a new digital currency, there has been silence from the banks about a project that threatens to break down their role as gatekeepers of the global financial system. “We’re still learning what it is and trying to work out where we stand on it; are we an opponent, partner or do we ignore?,” said a person familiar with the approach to the project of one of the world’s biggest banks. Up and down Wall Street, the City of London and Europe’s financial centres, senior industry executives reel off a litany of hurdles to participation, while some also criticise the way Facebook has approached the project so far. No banks were on the initial list of 27 other partners for the Libra Association, which will oversee the currency, though David Marcus, who is leading the project at Facebook, said he wanted to “absolutely and strongly deny the fact that we’ve approached banks and banks have said no”. “We have had conversations with banks. We still have conversations with banks. And my expectation is that by the time this thing launches next year you will have banks that are going to be members of this,” he told the Information. Senior executives at banks, however, tell a different story. At least one bank, the Netherland’s ING, responded to Facebook’s initial contact with a polite “no thank you”. Several other senior executives said there would be big hurdles for their future involvement, either as active members of the Libra Association or by helping people to convert traditional money in and out of Libra coins. Mike Corbat, head of Citigroup, recently said that even though he was a “true believer” in cryptocurrencies and their underlying blockchain technology, Citi’s capacity to participate is constrained, “The challenge with cryptocurrencies is the opaqueness as to the sources of the money,” he said, referencing anti-money-laundering standards banks are held to. “It would be outside our ability to take or send those monies on behalf [of people who hold them].” Facebook’s Libra coin: the truth behind the hype Meanwhile, several banks are pushing ahead with projects to speed up payments, which some said would overtake the Libra initiative. Mastercard, which is part of the Libra project, is working with six Nordic banks to build a payments system that would allow real-time transfers, and be used across multiple currencies in multiple countries. Paul Stoddart, Mastercard’s president of new payment platforms, said he expected to see “more initiatives like this around the world where there are groups of countries or regions that are economically more tightly integrated”. In the US, The Clearing House, a payments company backed by a coalition of 25 large banks including JPMorgan Chase, Bank of America and Citigroup, offers domestic real-time payments on a network, launched in 2017, that already connects half of the country’s deposit accounts. And on June, 13 of the world’s biggest banks including UBS, Lloyds Banking Group and MUFG, announced plans to launch their own digital coin for use in wholesale banking. Recommended Libra: Facebook’s digital currency Will Facebook’s Libra currency shake up financial services? A senior executive at one of the banks involved said: “Facebook is right that cross-border payments are clunky and convoluted and you have to go through far too many counterparties, but banks are getting involved and will solve this problem and solve it pretty quickly.” The banks expect that the first institutional transaction with the “universal settlement coin” will take place within a year, and could be a cross-border trade. Meanwhile, the head of innovation at another US bank said the industry needed to understand a lot more, including the purpose of the Libra coin, the regulatory environment and the system’s technical underpinning before they could commit to the project. “We will be talking to them [Libra] very soon,” he said. “There’s a huge amount of scepticism but there’s some enormous names who have put up $10m a pop; there’s enough names of enough reputable organisations that have put up $10m to be a part of it to say there’s something there.” A senior executive at a third large US bank said he did not believe banks would have to lobby very hard to ensure that Libra attracts the same know-your-customer and anti-money-laundering scrutiny as traditional payments networks, which will heap costs on the project. “If this thing has the scale of 2bn people who can move money around outside of the financial system (without AML/KYC), it makes a mockery of the system,” he said. “We won’t have to persuade them in Washington . . . regulators are at it, they’ll make them lift to the same standards as everyone else.” The executive added that Facebook, which recently hired a prominent lobbyist from Standard Chartered, had already mishandled the regulatory piece by announcing their plans without having first brought regulators onside. Who is backing Libra so far? Payments Mastercard, PayPal, PayU, Stripe, Visa Tech and consumer Booking Holdings, eBay, Facebook, Farfetch, Lyft, Mercado Pago, Spotify, Uber Telecoms Iliad, Vodafone Blockchain Anchorage, Bison Trails, Coinbase, Xapo Holdings Venture Capital Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures NGOs Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking When JPMorgan Chase drew up plans for a much more limited digital coin, they had extensive conversations with regulators before going public, asking them for informal guidance on what would be acceptable to them, a person close to that process said. The Trump administration’s financial regulation regime is much more amenable to those iterative conversations than the Obama administration, which “saw banks as the enemy”, he added. The head of innovation of a large European bank said its participation was hampered by the fact that “regulations don’t allow us to be very entrepreneurial in this area”. Mr Marcus acknowledged the regulatory concerns in a blog post on Wednesday. He promised a “collaborative process” with regulators, and said replacing cash with a digital network “with regulated on and off ramps with proper know-your-customer practices” could help limit financial crime. A senior executive at a fourth large US bank said his company might still participate but there was a long road ahead. “The money [initial $10m investment] over here wouldn’t be the most material hurdles, they [the sums] are not big among in the scheme of things,” he said. The test would be whether it is “regulated, and is it really solving a problem or just ticking a quasi-innovation box, we’d need to be comfortable with the use cases, what they would do beyond regulation, regulation is like a minimum bar”. For some banks, even ticking all those boxes will not go far enough. “You could argue it’s a competitor to our competitive advantage . . . the ability to move money around the world for customers within our network. So it would be rather unusual to go outside that, to compete against yourself, in many ways.”
After years of disregarding privacy, exploiting user data, and failing to control its platform, Facebook has now unveiled a cryptocurrency and payment system that could take down the entire global economy. Governments must intervene before a company that “moves fast and breaks things” ends up breaking everything.
Facebook’s Calibra cryptocurrency is on its way.
It’s mission is to “enable a simple global currency and financial infrastructure that empowers billions of people”.
At TILTing 2019 the Lab presented a study on the legal instruments that are, as of today, applicable to blockchain-based digital assets under European law, and the relative enforcement challenges. The broader question to be tackled is whether and how regulators deal with such challenges, and what are the interests at stake. http://ipkitten.blogspot.com/2019/05/tilting-perspectives-2019-report-2.html
The only female leader in the Pacific Islands is facing a no-confidence challenge after pushing ahead with the controversial introduction of a digital currency for the Marshall Islands.In February this year President Hilda Heine announced plans to introduce a cryptocurrency to operate as the country’s second legal tender alongside the US dollar, saying her country must not remain idle but “advance into the future”.The cryptocurrency, known as Sovereign or “Sov” was to be issued by an Israeli start-up company, which, according to the International Monetary Fund has “limited financial sector experience”.