Blockchain Solution Sought By Financial Services Firm UBS Ahead of New EU Rulesbr>
Financial services firm UBS, along with Barclays, Credit Suisse, KBC, SIX and Thomson Reuters, are testing a blockchain platform to help them comply with new MiFIDII regulatory requirements due to come into force next year.
The project, called Massive Autonomous Distributed Reconciliation (Madrec) platform, was born out of UBS’ London-based FinTech hub Level 39. It was developed to improve data quality as part of the impending implementation of the MiFID II/MiFIR regulation in January next year. This new legislative framework aims to strengthen investor protection and improve the functioning of financial markets making them more efficient, resilient and transparent. One such requirement will be for each institution to obtain a Legal Entity Identifier (LEI).
The Madrec platform is designed to make it easier for banks to reconcile a wide range of data about their counterparties using ethereum smart contracts. The Madrec platform aims to improve the way in which participants can baseline their Legal LEI reference data against the industry consensus.
UBS explained that the specific reference data for each Legal Entity is cryptographically concealed at each institution using a process called hashing. The source data is held and remains within the participating institution. Only the hashed data is submitted, anonymously, to an ethereum private blockchain powered by Microsoft Azure. The smart contracts then reconcile the data against the consensus and provide each participant, via a user interface, the ability to search and view their own specific data in real-time. A user can then quickly see where the anomalies lie in the data set and work to resolve those.
“Traditionally, a firm such as ours quality checks data against multiple sources but we do not have a quality baseline against peers,” said Christophe Tummers, Head of Data at UBS. “Through using blockchain-inspired smart contracts, the reconciliation of data can happen in almost real-time for all participants, anonymously.”
“Applying blockchain to the challenges of regulatory data management presents an additional exciting opportunity for SIX to focus its data quality efforts and expertise in regulatory services in a customer oriented way,” said Robert Jeanbart, Division CEO SIX Financial Information.
“This is an important project as it establishes blockchain benefits in a broader context than clearing and settlement,” said Emmanuel Aidoo, Head of Blockchain Strategy at Credit Suisse. “The use of blockchain to solve real-world regulatory requirements in a cost effective way is very appealing.”