Lost in translation: Smart contracts for financial services

The concept of smart contracts is simple; clauses and rules are embedded in software which is distributed via networks to provide an interface which formalises a transaction. Bitcoin has a distributed ledger a distributed consensus mechanism, and a distributed set of business rules and conditions. The contract for Bitcoin is relatively simple: ‘are the parties who they purport to be’, ‘do they have permission to buy/sell’ and ‘does the buyer have funds’. This is a straightforward smart contract which is actioned and then fulfilled for every buy or sell on the Bitcoin network.

The idea of a smart contract is very powerful; putting your trust in a set of rules and a shared consensus mechanism rather than any one party seems, on the face of it, an ideal solution. In finance we already trust in rules and triggers such as ‘stop loss orders’ and ‘buy triggers’ for share trading. This kind of trigger is relatively simple but still this transaction has its fair share of intermediaries and parties. For a wealth product, where I may be buying units in a fund which will trigger purchases in multiple markets and assets there are many more intermediaries and contracts. This increasing level of complex relationships and parties means that the contracts and rules must also be more complex and brings me to my concern in developing even medium complexity smart contracts with high levels of automation.

MAS: Bringing compliance closer to the cloud

The Monetary Authority of Singapore (MAS) has helped dispel some of the uncertainty around outsourcing and cloud-based models in the governance, finance, risk and compliance (GFRC) context, with the inclusion of guidance on cloud computing services in its updated guidelines on managing the risks associated with outsourcing. Here Wouter Delbaere, Asia-Pacific Market Manager, Regulatory Reporting, for Wolters Kluwer’s Finance, Risk & Reporting business, explores this welcome development that should pave the way for greater adoption of these services - and hence a more efficient and cost-effective approach to GFRC - among financial institutions.

Banks in Asia are increasingly aware of the potential of cloud computing to reduce the costs and enhance the flexibility of their information technology infrastructure, and many are turning to cloud solutions in areas such as software development or customer relationship management. However, the security concerns and regulatory restrictions surrounding sensitive customer and financial data make service-based IT approaches to governance, finance, risk and compliance (GFRC) less common.

The future of the banking industry

Every month we see huge developments and changes happening in the banking industry. In September, IBM released research suggesting that 65% of banks have plans to put blockchain projects in production in three years’ time. Meanwhile the CMA recently released findings stating that banks are not working hard enough for their customers, and the BBC claims more than 600 High Street bank branches have closed in the UK in the past year. On top of this, traditional retail banks are facing increasing competition from digital-first challenger banks such as Monzo (formerly Mondo) and Atom.

The changes aren’t just coming from within the industry, but also from a huge shift in customer expectations. 51% of US adults bank online, as do 47% of Europeans, and this number is likely to increase as more Millennials buy in to financial services. This is part of a wider customer attitude that banks should be using the latest popular technology to provide the best service to their customers. However, with new expectations and technologies emerging all the time, how can the banking industry adapt to this digital world?