Recent Blockchain Regulatory Developments

Blockchain and distributed ledger technology ("DLT") applications outside of the bitcoin context are attracting the attention of financial entities, prompting regulators to become increasingly focused on these possible applications.1 Recently, for example: (i) potential financial and securities applications of DLT were discussed in depth at a "FinTech Forum" held at the Securities and Exchange Commission ("SEC"); (ii) the Federal Reserve Board published a paper titled "Distributed Ledger Technology in Payments, Clearing, and Settlement"; and (iii) the Financial Industry Regulatory Authority ("FINRA") published a paper titled "Distributed Ledger Technology: Implications of Blockchain for the Securities Industry."2 Each of these recent developments is discussed in turn below.

1) DLT Discussion at the SEC FinTech Forum

The DLT portion of the FinTech Forum featured panelists from a financial institution, academia, a major accounting firm, and a software company focused on DLT.

The panelists covered the following topics, among others:

DLT may offer an alternative to the varied recordkeeping systems used by various financial intermediaries and, in such capacity, provide enhanced efficiencies and technological capabilities. Smart contract technology may supplant certain middle and back office functions by enabling the transfer of digital assets and automating the steps that trigger the occurrence of particular lifecycle events.3 As an example of an early adopter, the Australian Stock Exchange Group is in the process of changing its current clearing and settlement system for equities to incorporate DLT. The technology is expected to reduce costs for both the Exchange and its member firms, primarily by eliminating certain reconciliation-related processes. The incorporation of DLT is also expected to provide increased transparency, which should benefit regulators, among other parties. The Australian Stock Exchange Group is also considering using DLT to change its current T+2 settlement cycle to a more optimal settlement cycle. Another potential early adopter, the Depository Trust & Clearing Corporation, recently tested DLT and smart contract software that would handle data storage and lifecycle processing services for credit default swaps. Again, the technology is expected to reduce costs and eliminate various reconciliation-related processes. Others exploring DLT applications include: participants in the health sector (applications for recordkeeping...