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Blockchain, Crypto, ICO

Crypto and blockchain update – regulatory developments and many blockchain initiatives

There have been many developments in the crypto currency and blockchain world since our last post on the topic (see here).

Crypto currency developments
The European Central Bank (ECB) has stated that banks engaging in crypto activity should segregate it from other parts of the bank, according to this article on the Reuters web site.  They also have stated that such activity should be subject to “appropriate levels of capital”. This will need further definition.  Separately, Crypto Facilities, a UK-based crypto-currency trading platform has launched Etherium futures, according to this article on Coin Telegraph. the platform is FCA regulated , and already offers Bitcoin and Ripple futures.

In the meantime, this article on web site discusses the debate in the US over the SEC’s and CFTC’s views on whether crypto currencies are “securities”or “commodities” or , and therefore who should regulate them.  The answer appears to revolve around the 1946 “Howey test” and has several consequences. This article on the International Finance Law Review looks at some of the consequences, especially with regard to ICOs, from a positive and negative viewpoint.

Blockchain initiatives
The CFTC has recently issued a paper on the the future of swaps regulation entitled “An Assessment of the Current Implementation of Reform and Proposals for Next Steps” which can be found here.  Amongst its contents, it is argued that blockchain based reporting could offer significant advantages to both market participants and regulators. The blockchain aspects of the paper are summarised in this article on the Crowd Funder Insider site. Also in the financial markets, several financial institutions have committed to using ISDA’s Common Domain Model (CDM) for distributed ledger applications, as reported here on the Smart brief web site.

Centrica together with LO3 have launched a Local Energy Market in Cornwall in the UK, which uses blockchain technology to support peer to peer trading, The platform supports the move to more localised trading on the distribution network, which supports the move to renewables. The press release, which can be found here, also discusses a US based initiative by Direct Energy to support “micro hedging”.  In a similar vein, this article on the bitcoinist web site reports on trades being executed on a UK based blockchain platform which supports residential peer to peer trading.

HSBC has announced that they have performed the first trade finance deal on a single blockchain, as reported here on the Reuters web site. The platform supports the documentation intensive and well established Letter of Credit process, which can stretch the time taken to put such trade finance in place. Separately, Arkratos has launched an agricultural committees trading platform, as reported here on the Global Trade Review web site. It will use smart contracts to support the complex process around such transactions.

From hype to “making it work”
These examples of activity and the corresponding regulations, are only a sample of the hive of activity around the area of blockchain and crypto currencies. At this stage, the market appears to have passed the peak of the “hype” cycle and is focusing on how to create real life useful applications using the technology. It will be interesting to see how these and other developments evolve, and which ones end up becoming useful and in some cases transformative applications, in everyday use.


About avivhandler

Aviv is the Managing Director of ETR Advisory, a niche consultancy focused on the regulation of the commodity, energy and financial markets. He has more than 23 years of experience in the financial, energy and commodity markets, covering regulatory compliance, credit, risk and financial technology. Prior to founding ETR, he was Partner at SunGard Global Services, where he built a Centre of Excellence in European Energy and Commodity Regulation. Before that, he founded Coherence, a consulting firm specializing in credit risk in commodity and energy trading as well as software product management. The credit practice ultimately became part of Sirius Solutions, where he was the Managing Director of Europe. He has also held management roles at KWI and Iris Financial, among other organizations. Mr. Handler holds a degree in computer science from Imperial College, University of London.


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