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Capco Blockchain, Distributed Ledger and Cryptocurrencies keynote to IIROC conference


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blockchain overview with some use cases and automated compliance solution. Delivered to an audience of 400 compliance officers in the securities industry

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Capco Blockchain, Distributed Ledger and Cryptocurrencies keynote to IIROC conference

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  3. 3. CORE SERVICES Identifying key disruptive innovations and understanding how they can be used to create more effective business solutions and enhance our lives. Helping businesses of all sizes develop outcome-based strategies to drive their business through exponential growth in the age of people revolution. Developing commercial propositions to bring ideas to market. Purposeful prototyping to facilitate the rapid development of elegant, user- centered experiences that help products and services stand out as well as stand for something. HUMANISTICS. DATA. CONNECT. STRATEGICCONSULTING. DISRUPTION. INCUBATION. VENTURES. Providing insight and structured training on the skills and best practices your organization needs to thrive in the new world.Using new technologies to bring to life large data sets allowing you to ask the right questions and get a new perspective on your business and personal data. Introducing a network of start-up organizations to corporates, aligning interests for both parties and helping to build a new participatory culture across industries. ACCELERATORS DIGITALPRODUCTION+ENGINEERING. Development of new software assets aligned to our transformational purpose: “to make life a little but more wonderful in any way we can”.
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  5. 5. Why is Bitcoin different? Bitcoin represents the first non-fiat cryptocurrency secured using Blockchain • Built from a scholarly paper written by Satoshi Nakamoto • Started in 2008 • In June of 2009, $100 would have bought 1,000,000 bitcoins • They would be worth $612,000,000 today • Bitcoins can be divided down to 8 decimal places • 0.00000001 bitcoin = 1 Satoshi • Finite Supply – new bitcoins will stop being created at ~21,000,000
  6. 6. “Blockchain technologies could reduce banks' infrastructural costs by $15-20bn a year by 2022” - Santander InnoVentures “Blockchain is an opportunity for Wall Street to streamline some operations that are pretty antiquated” - Duncan Niederauer, former CEO of NYSE Euronext (Private investor in symbiont) “Blockchain technology continues to redefine not only how the exchange sector operates, but the global financial economy as a whole” - Bob Greifeld, CEO, Nasdaq
  7. 7. What is Blockchain? A suite of common technologies that enable secure transactional-based systems like cryptocurrencies: • Distributed Systems • Peer to Peer Networks • Hashing Functions • Merkle Trees • Cryptography • Digital Signatures • Distributed ledgers
  8. 8. Blockchain vs Distributed Ledger? • Blockchain: An open public node based Blockchain platform that anyone can participate in • Distributed Ledger: A closed Blockchain platform that only allows a specific group of participants to be included as nodes
  9. 9. Sender Public validation Block added to reflect new transaction(s) ...updates resulting in a chain Transaction validation and Network update  Transaction validity no longer in a single central database; removal of central intermediary  Peer-to-peer network of nodes reaching consensus on valid transactions  Transaction history is recorded and validated by all parties  Validation process can be near real time  Transaction security: when a message is encrypted with a public key, only the holder of the private key can decipher it  Private keys also act as a digital signature for the public key  Definitive transfer of ownership with complete, auditable transaction history Blockchain Framework (Conceptual) Decentralized Consensus Protocol & Ledger Cryptographic Digital Fingerprint Private Key Asset transaction (i.e bitcoin transfer) Message to Network Decentralized Network Network participants Public Key ✓ ✓ ✓✓ ✓ ✓ ✓✓ ✓ ✓ Non-Repudiable Chain of Ownership
  10. 10. Lego Demonstration
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  12. 12.     Seller Asset FinancialTerms Legal Terms Deal Structure Gold Real Asset Co. in London permits gold bugs to record their bullion on the blockchain and will soon enable them to trade the metal. Digital Asset is developing a way to record and settle these short-term government bond trades on a distributed ledger. Digital Asset Holdings, Masters's firm, is creating a distributed ledger to handle the settlement of pooled corporate debt. Private Shares Nasdaq is developing a blockchain-based system for trading shares in closely held companies. Chain, a San Francisco firm, offers software tools for developers to build apps to transmit anything of value on the ledger, including loyalty points. London-based Earthport and Ripple Labs, a San Francisco startup, have launched a new international payments network on a private blockchain. MeXBT in Mexico City provides a Web-based app that lets migrants send money via the blockchain to Mexico and withdraw cash from ATMs. London startup Everledger uses 40 unique characteristics to 'fingerprint' large diamonds and record the stones on the blockchain to track them from the mine to someone's finger. Physical objects, property, art, music U.S. Treasury Repos Interbank Payments Airline Miles Each block includes verified transactions, and the blockchain maintains a ledger with all prior transactions. The blockchain is duplicated by all the computers on a network. Block Transaction & Chain Syndicated Loans Factom, based in Austin, Texas, is building a land title registry in Honduras on the blockchain so citizens can defend their property in court from unlawful seizures. Diamonds Remittances
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  14. 14. FIs are responsible for complying with and reporting on a multitude of regulatory requirements. These activities may be executed internally by a functional area within the organization or via a third party. Audit, tax, CCAR and routine OSC and IIROC filings are just a few compliance-related activities that add additional cost to FIs’ annual spend. • Compliance costs are high: Compliance activities are a major portion of the cost overhead FIs deal with. In 2014 the largest FIs spent US$ 4 billion in compliance-relatedactivities1 • Auditing costs are high: Auditing represents one of the largest annual compliance costs for FIs. On average, public companies paid in excessof US$ 7.1 million in audit fees in 20132 Automated Compliance via Blockchain Key ecosystem stakeholders Auditor FinancialInstitution Regulator Accountant Bank of Canada Revenue Canada Financial Times,2015. 2. 2015 Annual Audit Fee Report, Financial Executives Research Foundation, 2015. 1. Banks face pushback over surging compliance and regulatory costs,
  15. 15. Assessment Reporting Additional compliance activities Bank Financials Smart contract Accounts receivable Accounts payable Management assertions Depreciation Distributed Ledger (DLT) Financial Data Extraction Layer Losses LiabilitiesAssetsIncome Auditor Accounts Accounts payable receivable Accessed throughDLT Auditor Independent auditreport Stored onDLT CRAAccountant + + + Comprehensive Capital Assessment Review Regulator Bank of Canada Enterprise tax filing 1 2 3 4 Future-state benefits 1 Data transparency: enabling data stored within financial systems to be accessible via DLT through the financial data extraction layer provides immutable and transparent records that are updated in realtime 2 Automated review: financial information accessible via DLT enables an automated review via audit software, reducing the time and resources required to perform these activities 3 Reduced errors: audit teams have authorized access to financial data, eliminating errors generated by manual activities and streamlining the update process 4 Integrated systems: reporting activities executed via DLT facilitates the creationof quarterly and annual filings, reducing duplicateefforts In the future, DLT can enable additional compliance activities to be seamlesslyexecuted throughautomation: 5 The bank provides Bank of Canada officials with authorized access to facilitate automated capital analysis and storeresults onDLT 6 The bank provides tax accountants with authorized access to real-time financialdata to facilitate tax calculations and automate CRA taxpayments 5 6
  16. 16. Providing compartmentalized access to data Automating faster and efficient enforcement of regulations Enabling interoperabilitywith legacy platforms The DLT solution must ensure access can be authorized at the financial category level(e.g. assets, liabilities,etc.) FIs and regulators must transition to a real- time cadence for sharing financiallymaterial information Legacy platforms of FIs and regulatoryagencies must be capable of feeding data directly into and extracting data from the distributedledger Why? Why? Why? To mitigate risk, external users should only have access to financial data that is material to their complianceactivity Providing regulators with real-timetransparent access to financial data enables the regulatory enforcement of compliance-relatedactivities To facilitate process automation, technology platforms must be capable of transmittingand receiving data on the distributedledger Challenge Challenge Challenge Current DLT solutions authorize access tothe ledger as a whole and do not provide the capability to partitionaccess Given no legal/regulatory precedent, establishing a shared arrangementbetween the regulator and FIs will bearduous FIs and regulatory agencies use multiple technology solutions that may be incapableof interfacing with theledger Critical condition categories Stakeholder Technology Regulatory Governance alignment
  17. 17. Thank You