Rudimentary Compliance Reflections – Blockchain/DLT

“There is a risk of innovating as well as well as not innovating”

Bethany Dugan, OCC, Deputy Comptroller of Operational Risk


Basic Terms:

  • DLT (“Digitial Ledger Technology”): a form of technology such as Blockchain.
  • Smart Contract: Contract between parties is written into code. The triggering event occurs and contract executes itself according to the coded terms.
  • Regulatory Sandbox: A Practice for innovation, countries across the world are deploying regulatory sandbox programs in efforts to boost research, innovation, and development in the competitive fintech sector.


DLT – A Cautionary Story:

DAO – What can happen if there is a bug in technology and the technology is unregulated


Current DLT Use:

  • Nasdaq, Inc. and Citi Treasury and Trade Solutions have created an integrated payment solution that enables straight through payment processing and automates reconciliation by using a distributed ledger to record and transmit payment instructions.
  • Nasdaq is helping to launch a blockchain market for advertising contracts. The New York Interactive Advertising Exchange (“NYIAX”), a transparent means for to trade digital media. Nasdaq is providing the technology that will power the exchange. Look for NYIAX to be operational in late 2017.
  • In January this year, DTCC launched a project to ‘replatform’ its CDS warehouse using DLT. DTCC is now in production of replatforming and should finish in 2018.


DLT and the Regulatory Lens:

  • Regulatory compliance and investor protection should be kept in mind.
  • The OCC issued a plan in November of 2016 to issue national ‘special purpose’ bank charters to Fintech companies. The idea behind the charter is to encourage innovation.  The plan has received significant criticism regarding whether the OCC has jurisdiction.
  • What governance do you need?
  • Smart contracts should they have kill switches?
    Is it a commodity or not a commodity?
  • You could design DLT to be a security and find yourself under regulatory jurisdiction.
    If DLT touches a consumer, consider the consumer protection regulations.
  • Does the technology address clearing and settlement requirements?
    SEC has seen the usual enforcement cases, now those cases are playing out through new technology.
    Are you a technology company or financial institution?


Future Considerations for DLT:

  • All night marketplace lending
  • E-proxy voting
  • Data storage
  • Clearing
  • Shortening the settlement cycle

Optimizing current business is not an option


Elin is the CEO of Elinphant a financial compliance services firm. Elin ensures compliance officers who serve clients are skilled and knowledgeable in relation to the clients business and needs. Elin is known for looking at compliance challenges as well as marketing and sales in an innovative and direct manner.