“Standing Still is Not Really an Option” — Blockchain’s Impact on the Financial Industry

By Jack Filiba

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LongHash recently hosted the inaugural DLT Compass conference in Singapore. The event brought together industry experts to discuss blockchain technology’s potential to achieve mass adoption. We previously published coverage of a panel where investors discussed if blockchain can deliver on its promise of disrupting entire industries.

On the first day of DLT Compass, industry leaders discussed how blockchain technology is changing the landscape of modern finance. The discussion brought together distinguished panelists such as DBS Bank’s Amit Agarwal, Standard Chartered’s John Ho, SIX’s Neil Thomas, OCBC’s Aditya Kumar Sinha, and KPMG’s Chia Tek Yew. Each panelist serves as one of the key drivers and decision makers for blockchain adoption in their respective companies. The discussion was moderated by HashKey Pro’s Chief Strategy Officer, Ben El-Baz.

Banks and financial players agree, blockchain can’t be ignored

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Bitcoin was the first product to be born from blockchain technology. In its ten years of existence, it has challenged how the world perceives value. If Bitcoin, a token that only exists digitally, can be traded freely and retain value across borders, why couldn’t its underlying technology also turn real world assets into tokens?

As it turns out, it can. The panelists agreed that representing physical assets with digital tokens is one of the most promising use cases for distributed ledger technologies like blockchain.

“The market is moving very, very fast,” said Neil Thomas. “Disruption is now at a pace where you can’t ignore it. So, whether we wanted to or not, we were sort of forced into looking at the future. We feel that, through DLT, the technology is now there to move away from the traditional [stock] exchange model.”

Thomas works as the head of sales in Asia at SIX, and is the company’s country head of Singapore and Japan. The financial services provider has maintained Switzerland’s principal stock exchange for years. Now, it is using DLT to create the first fully-regulated digital exchange using tokenized assets.

“For us, there’s not an option not to do this,” he added. “Standing still is not really an option. If we don’t do it, someone else will come along and do it for us.”

SIX’s plan is to let users trade not only financial instruments, but also just about anything that can be tokenized, in a regulated environment. For example, users could trade ownership of art or even wine in the form of digital tokens.

According to the other panelists, these types of initiatives have the potential to drastically shape the economy by permitting the trade of previously-illiquid assets. Tokenization could even make asset ownership more accessible to a broader spectrum of the public.

Blockchain technology could improve real-time gross settlement (RTGS)

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John Ho, the head of financial markets at Standard Chartered Bank, mentioned other use cases for blockchain technology in addition to tokenization. Namely, he believes it can help solve problems in the banking sector.

“If you look at, in particular, the kind of payments you make on mobile phones, those are kind of instantaneous, because either they are in the form of e-money or stored value facility,” he said. “But when you actually make payments cross-border using real-time gross settlement, it’s a problem, because on weekends the banking system shuts down."

According to Ho, one of the challenges for financial institutions like Standard Chartered Bank is how to make cross-border payments more efficient and cost-effective.

“Obviously that’s a journey itself,” he said. “This is an area of focus on an intergovernmental basis, on a private sector basis… and I think in a short period of time, within one or two years, we can see real use cases of RTGS payment using blockchain technology. Leveraging technology to present one single source of truth [and] faster, cheaper, and more efficient payment.”

For financial industry players, regulation is still a hurdle

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Another prominent use case for blockchain technology in the financial sector is improving the efficiency of know your customer (KYC) practices. The panel’s moderator, Ben El-Baz, mentioned a report from BIS research which claimed that using DLT-based solutions could reduce administrative costs associated with KYC and anti-money-laundering (AML) compliance by up to 90%.

“It’s very difficult for a bank to validate all [KYC and AML] information,” said Aditya Kumar Sinha, the head of technology and process at The Open Vault at OCBC. “That’s where we picked up a use case, and we are working with multiple parties to create a complete ecosystem in which, first: we want to see how can we bring all the respective sources of information together and use it to speed up our KYC, and second: go cross-border.”

However, using blockchain technology to improve KYC and AML practices comes with its own set of challenges.

“The biggest issue is trust,” said Chia Tek Yew, the head of Financial Services Advisory at KPMG Singapore. “The other big issue is liability. If Bank A screws up and Bank B relies on Bank A, Bank B gets into trouble. So I think those are the key areas that we have to work through. That’s why the regulator’s input is very important.”

When it comes to the hurdles impeding blockchain’s adoption in the financial sector as a whole, regulation is often considered a key issue. While the blockchain movement is a global phenomenon, it exists in a world of borders where regulatory approaches can differ wildly between countries or even states.

Effectively tackling regulatory obstacles, the panelists said, could require a level of trust and collaboration between international authorities and legislators. Still, despite these challenges, blockchain technology is set to reshape the financial industry.

“[How banks look] is completely going to change,” said Amit Agarwal, the executive director at DBS Bank. “Banking will become easier, it won’t be as tough as it is right now, and [blockchain technology] will completely change the internal suite of products that banks use to sell to the customer.”

LongHash’s DLT Compass conference was held in Singapore from June 6 to June 7. Keep an eye out for our footage from the event in the near future.

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