With MiFID II set to come into force in just a few days, UBS has initiated a project to use Ethereum smart contracts for compliance.
The Swiss bank is collaborating with Barclays, Credit Suisse, KBC, SIX and Thomson Reuters to use the contracts to improve the quality of counterparty reference data through anonymous reconciliation.
UBS initiated the project in innovation lab at Level39 in London, with idea borne out of the need to improve data quality as part of the impending implementation of the MiFID II/MiFIR regulation in January.
The new legislative framework aims to strengthen investor protection and improve the functioning of financial markets making them more efficient, resilient and transparent.
Under MiFID II, each institution is expected to have individual Legal Entity Identifier (LEI). UBS plans to use the project to streamline the process of reconciling the reference data which pertains to the LEI for each entity – such as industry classification, identifiers and European Securities and Markets Authority data.
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 Ethereum 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.
“MiFID II creates complex data management challenges for businesses, and this initiative presents a unique opportunity for firms to benchmark content alongside their peers before it is used in regulatory reporting,” said Mark Davies, Global Head of RMS Data Services at Thomson Reuters. “This is an exciting and collaborative project that uses the latest blockchain technology to solve a real-world business challenge by improving the quality of counterparty reference data.”
The project is currently in a ‘pilot in a mock-live environment’ using 22,000 non-sensitive LEI reference attributes for cash equity issuers. It is to be completed by the end of January 2018, with further, staged rollout dependent on the findings.
In a recent research interview with FinTech Global Craig Wallis, partner and head of trading at OSMO Partners, said the majority of buy-side firms are still a way off from being MiFID II compliant; however, RegTech will be pivotal to the industry.
“RegTech startups are pivotal to the industry and will play a huge part in years to come. Development of new products and solutions is what drives innovative approaches to solving the ever-growing regulatory burden that investment managers face,” according to Wallis.
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