Blockchain Technology in Finance
For Assessment 1, the students will be required to evaluate the merits of a blockchain project against the relevant regulatory frameworks around stable coin treatment, credit risk and data protection.
• LO1. Gain a comprehensive understanding of fintech and blockchain technology, its impact, applications and opportunities to the finance profession.
• LO5. Critically discuss the regulatory environment for blockchain technologies.
Scenario:
You are recently appointed as a Chief Financial Officer (CFO) of Financial Technology Services limited (“your Company”), a company specialised in offering Blockchain solutions to Enterprise Players. Your first potential client is a consortium of globally systemically important banks (the “Consortium”), led by a well-known former investment banker (the “Consortium Executive”). The Consortium’s objective is optimising their back-office operations, cutting costs and increase process optimisation which, currently, is still largely manual. Additionally, back-office data requires constant reconciliation across each of the Consortium banks’ respective Ledgers, thus resulting in a slow and inefficient process. In doing so, the Consortium wants to issue its own “stablecoin” to be used as medium of exchange for settlement purposes.
However, the Consortium executive is worried about two main areas: data protection, due to the potential impact of GPDR on bank data being stored on the blockchain; the regulatory treatment of stablecoins, especially around tokens liability profile and inherent credit risk.
In order for your company to land the Consortium as client, your CEO tasks you with convincing the Consortium Executive to buy into your Company offering of a Blockchain-based solution to address the Consortium banks’ concerns related to regulation.
Required:
As an experienced CFO, you must make an educated opinion on the regulatory risk due to GDPR and the nature of a token representing cash, covering:
a. Protection of personal data on the blockchain via Privacy-preserving techniques or architectures
b The Credit Risk profile of the stable coin. Whose liability is it and who bears its credit risk? Can this risk be mitigated?
(550 words)