Colin Feely - Amazon Web Services · Partial Blockchain. Bond Process. Blockchain . Tokenization....

©2019 Grant Thornton Ireland. All rights reserved.

Colin FeelyPartner, Head of Financial Services AuditGrant Thornton

Welcome


Can Blockchain Tokenize the Funds Industry?

Adrian WhiteGrant Thornton Blockchain Lab

Grant Thornton IF Fintech Series

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Grant Thornton Blockchain Lab


Grant Thornton Blockchain Lab 2015-2019

5

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


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


Regulatory Entities: Blockchain

7

Data Protection Agency

Spanish Central Bank AML-KYC-Compliance

The National Securities Market Commission

Public Treasurer


Blockchain Introduction


Blockchain - is NOT Crypto (or Bitcoin)

9

EXAMPLE OF SOMETHING USING BLOCKCHAIN

BITCOIN WAS THE FIRSTCRYPTOCURRENCY


Today´s financial System

10

SellerIssuer

InvestorBeneficiary

Massive network of counterparties



11

SellerIssuer

InvestorBeneficiary

No Trust...

... Wait until settlement(T+2, T+3, .....)

Own recordsOwn records

Bank Bank



12

SellerIssuer

InvestorBeneficiaryOwn recordsOwn records

Own records

Speed up Settlementoffering clearing:

Bank Bank

Bank



13

SellerIssuer

InvestorBeneficiary

Own records


Own records

Speed up Settlement offering clearing:

Track the assetsissued (registrar)

Bank Bank

Bank

Bank



14

SellerIssuer

InvestorBeneficiary

Own records


Own records

Speed up Settlementoffering clearing:

Track the assetsissued (registrar)

Custodianfor investor

Bank Bank

Bank

BankBank


Solution to replace the need for trust

15

SellerIssuer

InvestorBeneficiary

?


Shared records (real time)

16

SellerIssuer

InvestorBeneficiary

✔✔ Shared Ledger of Activity

Bank Bank


Blockchain Network

17

SellerIssuer

InvestorBeneficiary

InvestorBeneficiary

SellerIssuer

SellerIssuer

InvestorBeneficiary

✔ ✔

✔

✔

✔

✔


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


Blockchain enables...

1

2

Completely digital representations of value

Controlled by cryptographic keys

Ownership is registered on a (distributed ledger)3


Smart Contracts


Before Smart Contracts (...2009-2015)

21

SellerIssuer

InvestorBeneficiary

OFFLINE CHANGE OF OWNERSHIP

OFFLINE CHANGE OF OWNERSHIP


Smart Contracts... 2015 onwards

22

REAL WORLDASSET

ATTRIBUTES & TERMS ATTACHED TO CONTRACT

TRANSLATED INTOCODE / RULES

TOKENIZEDASSET


Smart Contracts... Digital Assets

23

SellerIssuer

InvestorBeneficiary


Stability


Stabilising Digital currency

25

CENTRAL BANK DIGITAL CURRENCIES

UTILITY SETTLEMENT

COIN

EU Central Bank


Bond Issuance - FCA Sandbox


Bond Issuance - FCA Sandbox

27

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.


Traditional Bond Issuance (AS-IS)

28

BondRegistrar

Bond Issuer

NomineeAccount

InvestorBeneficiary

PayingAgent

ClearingHouse

InvestorCustodian

Beneficial Title registered in Clearing Platform

Legal title of nominee registered in Registrar


Bond Issuance (Partial Blockchain)

29

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



30

Tokenized / Digital Money on Blockchain

LuxDeco(Issuer)

InvestorBeneficiary



in LuxDeco Acc.

LuxDecoSecurity

Investor Security

• Removal of Clearing Function

Nivaura Blockchain



31

LuxDeco(Issuer)

InvestorBeneficiary



in LuxDeco Acc.

LuxDecoSecurity

Investor Security

Nivaura Blockchain

Tokenized / Digital Assets flow on Blockchain

• Removal of Registrar and nominee account

• Removal of Legal Process



32

LuxDeco(Issuer)

InvestorBeneficiary



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


Bond Issuance FULL Blockchain

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LuxDeco(Issuer) Investor

Beneficiary



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.


Tokenized Bond Process

34

BondRegistrar

Bond Issuer

NomineeAccount

InvestorBeneficiary

PayingAgent

ClearingHouse

InvestorCustodian


Legal title of nominee registered in Registrar


Tokenized Bond Process

35

BondRegistrar

Bond Issuer

NomineeAccount

InvestorBeneficiary

PayingAgent

ClearingHouse

InvestorCustodian


Legal title of nominee registered in Registrar?*

?* ?* ?* ?*

*Change of Functions?1. Registrar2. Paying Agent3. Nominee Account4. Clearing Platform


Benefits and Challenges

36

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


Crypto-Assets


Crypto Assets

38

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.


Crypto Assets: Classifications

39

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


Crypto Assets: Regulation

40

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


Crypto Assets: Regulatory Challenges

41

1 2 3New Financial Intermediaries

Risk of Fraud& Manipulation

CustomerAgreements

CyberRisk4 5 6

Illicit Payments (AML-KYC)

Regulatory Gap


Looking Forward...


Considerations...

43

NEW ROLES

GEORGE ORWELL

CODE DRIVEN


Contact


Contacts

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Adrian White International Blockchain InitiativesT +34 91 399 41 19M +34 659 63 94 67E [email protected]

mailto:[email protected]


Hesus InomaAssociate Director - FinTech

Compounding effect of Deep Tech in the Funds Ecosystem


Our Roadmap Today

47

Compounding Effect of Deep Tech

“New Field” - Connected, Open and Sustainable Finance

Survival by Embedding Re-Invention into an Organisation

©2019 Grant Thornton Ireland. All rights reserved.48

“If the rate of change outside exceeds the rate of change on the

inside, the end is near.”


Big Data

IoT

RPA- ML - AI

DLT & Blockchain

Compounding Effect of Deep Tech – Future Proof Strategy


https://www.youtube.com/watch?v=NrmMk1Myrxc&app=desktop

https://www.youtube.com/watch?v=NrmMk1Myrxc&app=desktop


Tokenization Moments Borrowing

Paying

Saving

Investing Protecting

DLT Programmable FS Era


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


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


Can the Funds Ecosystem be unbundled?

54

Real Estate

Securities

Data


Experience = Brand = Trust = Access

Elegant – Simplistic - Curated Experiences


Dreams – Behavioural (Cognitive)

56


Folio – Themed (Algorithms & Gamification)

57


Ant Financial – Leftover Cash Investment (Micro-Investing)

58


Survival by Embedding Re-Invention into your Organisation!

59


Thank You!

60

Reach me on:


Thank you

grantthornton.ie

© 2019 Grant Thornton Ireland. All rights reserved.

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Colin Feely - Amazon Web Services · Partial Blockchain. Bond Process. Blockchain . Tokenization....

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