Tue. Dec 1st, 2020

Planet Compliance

Innovation & Regulation in Finance

An Overview of Blockchain Legislation and Regulatory Measures

22 min read

The Blockchain industry is often compared with the Wild West. in fact, part of its attraction seems to stem from a perceived lack of regulation as rules are often considered as hampering innovation. As with cryptocurrencies, regulators have been slow to respond to the questions surrounding the application of existing regulations or the introduction of new ones. Contrary to popular it isn’t a legal black hole as authorities around the world have issued rules or statements that indicate how they will treat services and solutions based on distributed ledger technology (DLT). We have compiled a list of relevant measures with regard to Blockchain regulation in financial services and related areas. We will continue to add new measures as they are published to make this a living document. The list is sorted in chronological order and contains for each entry a short description, which in most cases is based on the official release. In most cases, we tried to extract the essential part form a legal and regulatory perspective, but in any case it never is a full analysis of the regulatory measure and we would recommend you read the document properly.

Title: Investment using virtual currency or distributed ledger technology test

Issuer: ESMA

Date: 22/04/15

Jurisdiction: EU

Link: https://www.esma.europa.eu/press-news/consultations/investment-using-virtual-currency-or-distributed-ledger-technology

Description: ESMA has been monitoring and analysing virtual currency investment over the last 6 months, to understand developments in the market, potential benefits or risks for investors, market integrity or financial stability, and to support the functioning of the EU single market. ESMA’s analysis is set out in this paper. ESMA is seeking to share its analysis in order to promote wider understanding of innovative market developments, and invites market participants and other stakeholders to submit feedback and any additional information on the following topics:

  1. a) Virtual currency investment products, i.e. collective investment schemes or derivatives such as options and CFDs that have virtual currencies (VCs) as an underlying or invest in VC related businesses and infrastructure
  2. b) Virtual currency based assets/securities and asset transfers, i.e. financial assets such as shares, funds, etc. that are exclusively traded using virtual currency distributed ledgers (also known as block chains)
  3. c) The application of the distributed ledger technology to securities/investments, whether inside or outside a virtual currency environment. Outlining its next steps, ESMA stated that it “will monitor the evolution of investments using virtual currencies or distributed ledger technology so as to ensure that regulators are aware of significant market developments.


Title: Virtual Currencies and Beyond: Initial Considerations

Issuer: IMF

Date: 20/01/16

Jurisdiction: International

Link: http://www.imf.org/~/media/websites/imf/imported-full-text-pdf/external/pubs/ft/sdn/2016/_sdn1603.ashx

Description: In an IMF Staff Discussion paper, the authors explain in detail Virtual Currencies and DLT. It also highlights the regulatory and polciy challenges, in particular with regard to Financial Integrity: AML/CFT, Consumer Protection, Taxation , Exchange Controls and Capital Flow Management , Financial Stability, and Monetary Policy .


Title: Draft Report on Virtual Currencies

Issuer: European Parliament

Date: 23/02/16

Jurisdiction: EU

Link: http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML%2BCOMPARL%2BPE-575.277%2B01%2BDOC%2BPDF%2BV0//EN

Description: The Committee on Economic and Monetary Affairs from the European Parliament has published this draft report on virtual currencies and distributed ledger technology. While it praises both Virtual Currencies and DLT, it also highlights risks, namely the potential for money laundering, terrorist financing and tax fraud based on the ‘pseudonymity’ and ‘mixing services’ that some such services offer, bearing in mind that the traceability of cash transactions tends to be much lower still; the absence of flexible and reliable governance structures, especially in some DLT applications such as bitcoin that create uncertainty and consumer protection problems, especially in case of challenges unforeseen by the original software designers; the sometimes limited capacity of regulators in the area of new technology, which may make it difficult to define appropriate safeguards in a timely manner, ensuring the proper and reliable functioning of DLT applications when or even before they grow so large as to become systemically relevant; and the legal uncertainty surrounding new applications of DLT, which may in some instances be the subject of (sometimes ill-suited) existing legislation while in other instances appropriate regulation may still be lacking.


Title: Distributed Ledger: The technology behind virtual currencies: the example of blockchain

Issuer: BaFin

Date: 01/03/16

Jurisdiction: Germany

Link: https://www.bafin.de/SharedDocs/Veroeffentlichungen/EN/Fachartikel/2016/fa_bj_1602_blockchain_en.html

Description: The BaFin article explains how DLT works, how it can be applied and what effect it may have on the financial market. It concluded with the statement that “BaFin has been focusing on DLT for the past few months as a result of its innovative capacity. It is monitoring the latest developments in the FinTech industry very closely and is engaged in discussions related to DLT with other supervisory authorities. BaFin is also actively in contact with experts and market participants for the purposes of identifying any potential supervisory problems.”


Title: Keynote Address at the SEC-Rock Center on Corporate Governance Silicon Valley Initiative

Issuer: SEC

Date: 31/03/16

Jurisdiction: USA

Link: https://www.sec.gov/news/speech/chair-white-silicon-valley-initiative-3-31-16.html

Description: One key regulatory issue is whether blockchain applications require registration under existing Commission regulatory regimes, such as those for transfer agents or clearing agencies. We are actively exploring these issues and their implications. Our Advanced Notice of Proposed Rulemaking and Concept Release on transfer agent regulations issued last December, for example, asked for public comment on the use of blockchain technology by transfer agents and how such systems fit within federal securities regulations.[25] The insight from the comment process will help us evaluate how to best regulate these new innovations, and we encourage comment from all constituents.


Title: Ordonnance no 2016-520 du 28 avril 2016 relative aux bons de caisse

Issuer: French Parliament

Date: 29/04/16

Jurisdiction: France

Link: https://www.legifrance.gouv.fr/jo_pdf.do?id=JORFTEXT000032465520

Description: In June 2016, the French Parliament voted a law which allows some securities vouchers to be issued and exchanged on a DLT (referred as “securities electronic and distributed recording facility”). It empowers the government to issue a decree to specify how these securities vouchers, as well as how securities that are neither listed on a platform nor admitted to a central securities depository, would be exchanged through DLT. This in turn would result in a regulatory framework for DLT.


Title: H.Res 835: Expressing the sense of the House of Representatives that the United States should adopt a national policy for technology to promote consumers’ access to financial tools and online commerce to promote economic growth and consumer empowerment.

Issuer: House of Representatives

Date: 12/05/16

Jurisdiction: USA

Link: https://policy.house.gov/legislative/bills/hres835-expressing-sense-house-representatives-united-states-should-adopt-national

Description: The House press release stated that “on Monday, September 12, 2016, the House will consider H.Res.835, Expressing the sense of the House of Representatives that the United States should adopt a national policy for technology to promote consumers’ access to financial tools and online commerce to promote economic growth and consumer empowerment, under suspension of the rules.”


Title: Discussion Paper on the Distributed Ledger Technology Applied to Securities Markets

Issuer: ESMA

Date: 02/06/16

Jurisdiction: EU

Link: https://www.esma.europa.eu/sites/default/files/library/2016-773_dp_dlt_0.pdf

Description: In order to progress with its analysis, ESMA has decided to publish a Discussion Paper (DP) to seek stakeholders’ views on the results of its preliminary assessment.
Importantly, ESMA does not express at this stage any opinion on the DLT but rather
presents in a factual and objective manner the results of its preliminary analysis on
the possible impacts of the DLT on securities markets. ESMA appreciates that the
DLT may have different applications and impacts on financial activities, market
participants and market infrastructures, depending on a variety of elements,
including its capacity to address a number of technical, governance, legal and
regulatory issues. It is too early at this stage to form a definite opinion on whether
the DLT will be able to address these issues in an efficient way.


Title: FSOC highlights potential risks of DLT

Issuer: Financial Stability Oversight Council

Date: 21/06/16

Jurisdiction: USA

Link: https://www.treasury.gov/initiatives/fsoc/studies-reports/Documents/FSOC%202016%20Annual%20Report.pdf

Description: p. 132: Like most new technologies, distributed ledger systems also pose certain risks and uncertainties which market participants and financial regulators will need to monitor. Market participants have limited experience working with distributed ledger systems, and it is possible that operational vulnerabilities associated with such systems may not become apparent until they are deployed at scale. For example, in recent months, Bitcoin trade confirmation delays have increased dramatically and some trade failures have occurred as the speed with which new Bitcoin transactions are submitted has exceeded the speed with which they can be added to the blockchain. Similarly, although distributed ledger systems are designed to prevent reporting errors or fraud by a single party, some systems may be vulnerable to fraud executed through collusion among a significant fraction of participants in the system.


Title: Distributed Ledger Technology: Implications for Payments, Clearing, and Settlement

Issuer: Federal Reserve

Date: 07/10/16

Jurisdiction: USA

Link: https://www.federalreserve.gov/newsevents/speech/brainard20161007a.htm

Description: Speech by Governor Brainard: Like many new financial technologies, distributed ledgers could ameliorate or exacerbate traditional financial risks. What matters to us as policymakers and regulators is not only whether the migration to a new technological platform increases or reduces risks, but also whether risks are rendered more or less opaque, and how they are distributed among and between financial intermediaries and end users. In the payments, clearing, and settlement arena, some important risk areas for consideration include settlement, operations, and cybersecurity, as well as money laundering and terrorist financing. In managing risks, important considerations include system resiliency and governance as well as the role of licensing in ensuring proper oversight.


Title: European Commission sets up an internal Task Force on Financial Technology

Issuer: European Commission

Date: 14/11/16

Jurisdiction: EU

Link: https://ec.europa.eu/digital-single-market/en/blog/european-commission-sets-internal-task-force-financial-technology

Description: In order to help FinTech innovation reach its full potential with Europe playing a leading role, while ensuring financial stability and consumer confidence, we are pleased to announce that the European Commission is setting up a Financial Technology Task Force (FTTF). Co-chaired by DG FISMA and DG CONNECT, the Task Force brings together services responsible for financial regulation and for the Digital Single Market, along with other colleagues dealing with competition and consumer protection policy. It will further engage outside experts and stakeholders with the aim to formulate policy-oriented recommendations and propose measures in the course of 2017.
distributed ledger technology or blockchain which is high on the agenda of the whole sector.


Title: MAS, R3 and Financial Institutions experimenting with Blockchain Technology

Issuer: MAS

Date: 16/11/16

Jurisdiction: Singapore

Link: http://www.mas.gov.sg/News-and-Publications/Media-Releases/2016/MAS-experimenting-with-Blockchain-Technology.aspx

Description: The Monetary Authority of Singapore (MAS) today announced that it is partnering R3, a Blockchain technology company, and a consortium of financial institutions on a proof-of-concept project to conduct inter-bank payments using Blockchain technology. This project could potentially avail a payment system for participants to transact in different global markets round-the-clock that are today limited by time zone differences and office hours.


Title: Singapore’s FinTech Journey – Where We Are, What Is Next

Issuer: MAS

Date: 16/11/16

Jurisdiction: Singapore

Link: http://www.mas.gov.sg/News-and-Publications/Speeches-and-Monetary-Policy-Statements/Speeches/2016/Singapore-FinTech-Journey.aspx

Description: Speech by Mr Ravi Menon, Managing Director, Monetary Authority of Singapore, at Singapore FinTech Festival, highlighting work on A Blockchain Infrastructure for Cross-Border Interbank Payments -Reg Approach: First, we believe regulation must not front-run innovation. Second, we apply a materiality and proportionality test. Third, we focus on the balance of risks posed by new technologies or solutions.


Title: Financial Stability Board agrees 2017 workplan

Issuer: Financial Stability Board

Date: 17/11/16

Jurisdiction: International

Link: http://www.fsb.org/2016/11/financial-stability-board-agrees-2017-workplan/

Description: Members reviewed progress on the FSB FinTech workplan, including recent stocktakes in conjunction with other international bodies on topics such as authorities’ innovation facilitators, FinTech credit intermediation, and issues for authorities in the use of distributed ledger technology. Members noted the potential of FinTech to enhance financial resilience and also the need to remain vigilant to risks, including cyber risks, and agreed on a workplan to identify the supervisory and regulatory issues from a financial stability perspective.


Title: State of Illinois: Request for Information (RFI) Distributed Ledger and Blockchain Applications in the Public Sector

Issuer: State of Illinois Department of Innovation and Technology

Date: 30/11/16

Jurisdiction: USA

Link: https://www2.illinois.gov/sites/doit/Documents/BlockchainInitiative/RFI+Blockchain+and+Distributed+Ledger+Applications+in+the+Public+Sector.pdf

Description: Under the Illinois Blockchain Initiative, the initiative’s three areas of strategic focus include: (1) ensuring a welcoming regulatory environment for innovative digital currency and Blockchain companies wanting to do business in Illinois, (2) inviting blockchain businesses to innovate in Illinois and (3) exploring specific Blockchain and distributed ledger applications and prototypes for use in Illinois government. The intent of this RFI is to assist the State of Illinois to explore applications and use cases of blockchain technology, as indicated in area three.


Title: Distributed ledger technology in payments, clearing, and settlement

Issuer: Federal Reserve

Date: 01/12/16

Jurisdiction: USA

Link: https://www.federalreserve.gov/econresdata/feds/2016/files/2016095pap.pdf

Description: In addition to the challenges identified above, questions also arise about the way in which the implementation of DLT would fit into the risk-management frameworks that already exist to promote safety and confidence in payments and securities transfer processes. The legal framework (for example, statutes, regulations, policy, and supervision) governing financial markets and the conduct of PCS activities is well-established. Much of the existing legal environment, however, is organized and implemented in a manner consistent with the current financial market architecture, which has a complex network of participants that perform a variety of functions and are regulated, supervised, and overseen by a diverse group of regulators. The relevant laws, regulations, and supervisory policies are aimed at achieving broad objectives such as market transparency, safety and soundness of financial institutions, and the efficient and effective functioning of the broader financial system, and are not generally intended to favor a particular electronic technology.


Title: Distributed Ledger Technology: Implications of Blockchain for the Securities Industry

Issuer: FINRA

Date: 18/01/17

Jurisdiction: USA

Link: http://www.finra.org/sites/default/files/FINRA_Blockchain_Report.pdf

Description: B FINRA highlighted several areas with regulatory relevance: E.g. “Broker-dealers are exploring issuing and trading securities, facilitating automated actions (e.g., coupon payments) and maintaining transaction records on a DLT network. When adopting this new technology and revamping current processes, broker-dealers should be cognizant of all applicable federal and state laws, rules and regulations, including FINRA and SEC rules. In light of the potential for a paradigm shift for several traditional processes in the securities industry through the development of new business models and new practices incorporating DLT, this section highlights some of the major regulatory issues that broker-dealers may encounter. The discussion involves FINRA rules as well as some rules implemented by other regulators (such as the SEC) that FINRA is responsible for examining and enforcing. While we provide a framework for firms to consider application of various rules, this paper is not intended to provide specific guidance on facts and circumstances of any particular concept, arrangement or venture. Any potential application of blockchain technology in the securities markets may require independent legal advice and potentially interpretive guidance from FINRA, the SEC and other regulators. We invite market participates to engage in a dialogue with FINRA as they explore DLT and invite comments as part of this paper on matters for which it would be appropriate for FINRA to consider giving additional guidance, consistent with the principles of investor protection and market integrity, based on DLT applications and their implications for FINRA rules.” The report identified the following aspects that could see a regulatory impact: Customer Funds and Securities, Broker-Dealer Net Capital, Books and Records Requirements, Clearance and Settlement , Anti-Money Laundering and Customer Identification Programs, Customer Data Privacy, Trade and Order Reporting Requirements , Supervision and Surveillance , Fees and Commissions , Customer Confirmations and Account Statements.


Title: ENISA report on blockchain technology and security

Issuer: European Union Agency for Network and Information Security (ENISA)

Date: 20/01/17

Jurisdiction: EU

Link: https://ec.europa.eu/digital-single-market/en/news/enisa-report-blockchain-technology-and-security

Description: Foremost at the technical aspects of DLT, but also proposes best practices for implementation: Having identified key challenges related to Blockchain implementations, our recommendations focus on the good practices to adopt within each category. Some of the good practices are very well documented like the key management, others have been identified during our research. The good practices can be implemented by institutions which wish to participate in a distributed ledger network.


Title: How blockchain technology could change our lives

Issuer: European Parliament

Date: 01/02/17

Jurisdiction: EU

Link: http://www.europarl.europa.eu/RegData/etudes/IDAN/2017/581948/EPRS_IDA(2017)581948_EN.pdf

Description: Discussed the possibility of anticipatory policymaking: At first glance, the decentralised, encrypted and self-executing character of blockchain technological applications does seem to rely upon or assume a self-regulatory approach that would in principle operate in parallel to the traditional legal instruments. However, looking more carefully at the most advanced blockchain applications, a mixture of traditional and novel legal and regulatory questions are raised that must be considered in a contextual manner as some of the above-mentioned applications challenge fundamental tenets of law and diffuse the object of regulatory attention, as such, in a variety of ways. First of all, the decentralised, cross-boundary character of blockchain raises jurisdictional issues as it seems to diffuse institutional accountability and legal responsibility in an unprecedented manner, rendering the need for a harmonised regulatory approach at the transnational level more pertinent compared with a local or regional one. If blockchain technology developed significantly, centralised structures of law might lose their ability to control the ledger, with control passing to their users or other parties in the system, or to shape the activities of disparate people or autonomous decentralised organisations, as no one (including the original creator) can control the ledger after it has been deployed. There will be fewer checkpoints to guide and assist the flow of data. There are also various issues that need to be considered such as the legal enforceability of smart contracts, and liability and accountability issues, as distributed ledgers currently lack the legal personality that is necessary for them to be assigned with responsibilities and liabilities. This issue is exacerbated by the fact that they operate across borders and that smart contracts may not yet be capable of performing complex operations. Decentralised blockchain-based systems may be open to co-option by external powers and, in the absence of sufficient institutional protection, the platforms could evolve into oligarchies. An ill-intentioned decentralised autonomous organisation could be a source of regulatory concern in view of the potential for this transformative technology to be misused. Moreover, the encrypted qualities of blockchain technology may eliminate the possibility for legitimate forms of surveillance used for prosecution and law enforcement. Consumer protection will also be a key concern of regulators, as the contractual clauses and redress measures may not be clear to consumers and, given their automated character, not easily adjustable to a possible change of circumstances. Furthermore, there are security concerns of a regulatory nature, as it could be possible to trace or deduce a party’s identity from transactions. Finally, blockchain may lead to questions about the choice of law and jurisdiction for the adjudication of the relevant disputes.


Title: IOSCO Research Report on Financial Technologies (Fintech)

Issuer: IOSCO

Date: 08/02/17

Jurisdiction: International

Link: https://www.iosco.org/library/pubdocs/pdf/IOSCOPD554.pdf

Description: Section on DLT: As set out above, DLT proponents note that one of the benefits of DLT is that regulators can participate as one of the nodes in the DLT, thereby having access to all the data. This in turn would allow regulators to have more complete and more traceable, real time records. Regulators would, however, need to assess whether they want access to extensive real time data or whether standing filings suffice. If the former, and if regulators want to become a node in a DLT, it would require the development of highly automated surveillance function and the hiring of technology experts. The report does not go any further as IOSCO admitted that many regulators are still at a stage of exploring and understanding the technology.


Title: Evaluating distributed ledger technology

Issuer: Australia

Date: 01/03/17

Jurisdiction: Australia

Link: http://asic.gov.au/regulatory-resources/digital-transformation/evaluating-distributed-ledger-technology/

Description: This information sheet (INFO 219) is for both existing licensees and start-ups that are considering operating market infrastructure, or providing financial or consumer credit services, using distributed ledger technology (DLT) or blockchain. Based around 6 questions:

  1. How will the DLT be used?
  2. What DLT platform is being used?
  3. How is the DLT using data?
  4. How is the DLT run?
  5. How does the DLT work under the law?
  6. How does the DLT affect others?


Title: Innovation, Technology, and the Payments System

Issuer: Federal Reserve

Date: 03/03/17

Jurisdiction: USA

Link: https://www.federalreserve.gov/newsevents/speech/powell20170303a.htm

Description: In a speech by Jerome Powell entitled “Innovation, Technology, and the Payments System” at the Yale University event “Blockchain: The Future of Finance and Capital Markets?”, Powell stressed that “governance and risk management will be critical. For individual firms or clearing houses that adopt DLT as an internal technology upgrade, the governance and risk-management processes are likely to be internalized within existing organizations and be akin to other technology upgrades. However, if new networks of bilateral payment, clearing, and settlement are established, the new technology may involve tightly coupled protocols and operations. The safety of the overall design will depend on a highly interdependent framework. If automated risk management, smart contracts, and similar tools are deployed across a network, cascades of rapid and hard-to-control obligations and liquidity flows could propagate across a network and the financial system in response to events. This interdependence will likely call for creative organizational thinking to address the need for governance and strong risk management. Finally, the legal foundations supporting DLT will need attention. Deployments of DLT will involve firms, perhaps in different jurisdictions, with systems that record and transfer information and assets under existing legal frameworks. Which bodies of law apply to the particular firms, assets, and activities will determine the associated rights and responsibilities when transfers are made, cleared, and settled. For example, whether and how banking, payments, securities, or commodities laws apply in a given context are likely to be important in designing systems and services and understanding their properties. And, as with any new technology, things may go wrong. We will need a thorough analysis of how DLT fits into current legal frameworks and what gaps need to be filled by contractual agreements or new laws and regulations. A robust legal basis that provides certainty across relevant jurisdictions is essential for building strong governance, risk management, and operations.


Title: Technological innovation: Distributed Ledger Technology – challenges and opportunities for financial market infrastructures

Issuer: ECB

Date: 08/04/17

Jurisdiction: EU

Link: https://www.ecb.europa.eu/pub/annual/special-features/2016/html/index.en.html

Description: Conclusion: There is no doubt that technological innovation has the potential to profoundly impact the financial market we know today. But any new technology-based market infrastructure service needs to be mature enough to meet high requirements in terms of safety and efficiency. Against this background, the ECB cannot, at this stage, consider basing its market infrastructure on a DLT solution. The ECB will continue to explore, analyse and test new technologies.


Title: Discussion Paper on distributed ledger technology

Issuer: FCA

Date: 10/04/17

Jurisdiction: UK

Link: https://www.fca.org.uk/publications/discussion-papers/dp17-3-discussion-paper-distributed-ledger-technology

Description: Asked for feedback, but also stated with regard to risks&opportunities as well as ist regulatory approach that “At this stage we do not see a clear need to consider changes to our regulatory framework for DLT solutions to be implemented. Instead we want to explore emerging business models, and how their potential risks and opportunities operate in the context of our regulatory framework. In particular, we invite discussion on two sets of issues:

  • What new risks and opportunities does DLT present to our statutory objectives of
    market integrity, consumer protection and competition? Can DLT support more effective competition, financial system integrity and deliver better consumer outcomes? How can regulated firms mitigate any risks?
    • Do any of DLT’s characteristics make it challenging to fit DLT solutions into the regulatory framework, despite our approach of ‘technology neutrality’?”


Title: Pre-Information Notice for the EU Blockchain Observatory / Forum

Issuer: European Commission

Date: 18/04/17

Jurisdiction: EU

Link: https://ec.europa.eu/digital-single-market/en/news/pre-information-notice-eu-blockchain-observatory-forum

Description: In the context of the Horizontal Taskforce on FinTech and Distributed Ledger Technologies (DLT), the European Parliament has mandated the European Commission to implement a Pilot project in order to build up technical expertise and regulatory capacity. The European Commission intends to launch a call for tender for a service contract to set up an EU Blockchain Observatory.


Title: Draft of a national strategy to promote blockchain

Issuer: Malta government

Date: 20/04/17

Jurisdiction: Malta

Link: http://www.maltatoday.com.mt/business/technology/76459/malta_set_for_revolutionary_national_blockchain_strategy_#.WVuSmtOGM6j

Description: Maltese prime minister Joseph Muscat revealed in a speech at a conference organised by the financial affairs parliamentary committee that the cabinet has approved the first draft of a national strategy to promote blockchain


Title: Proposals for a DLT Regulatory Framework

Issuer: HM Government of Gibraltar

Date: 08/05/17

Jurisdiction: Gibraltar

Link: http://www.gibraltarfinance.gi/downloads/20170508-dlt-consultation-published-version.pdf?dc_%3D1494312876

Description: The Government of Gibraltar published a public consultation for a DLT regulatory framework. Gibraltar says it recognises the potential of the technology that underpins decentralised virtual currencies and its many other financial and non-financial use cases for DLT, including in government and the wider public sector. The draft also contains 9 principles as a basis of a regulatory framework:

  1. A DLT firm must conduct its business with honesty and integrity.
  2. A DLT firm must pay due regard to the interests and needs of each and all its customers and must communicate with its customers in a way which is fair, clear and not misleading.
  3. A DLT firm must maintain adequate financial and non-financial resources.
  4. A DLT firm must manage and control its business effectively, and conduct its business with due skill, care and diligence; including having proper regard to risks to its business and customers.
  5. A DLT firm must have effective arrangements in place for the protection of client assets and money when it is responsible for them.
  6. A DLT firm must have effective corporate governance arrangements.
  7. A DLT firm must ensure that all systems and security access protocols are maintained to appropriate high standards.
  8. A DLT firm must have systems in place to prevent, detect and disclose financial crime risks such as anti-money laundering and countering terrorist financing (AML/CFT).
  9. A DLT firm must be resilient and must develop contingency plans for the orderly and solvent wind down of its business.


Title: Blockchain technology

Issuer: BaFin

Date: 09/06/17

Jurisdiction: Germany

Link: https://www.bafin.de/EN/Aufsicht/FinTech/Blockchain/blockchain_artikel_en.html

Description: In an article on blockchain technology, BaFin explains the various aspects and highlights key questions that should be dealt with. The regulator states that “Blockchain technology promises a wide range of potential uses. As is the case with other kinds of data processing technology, its use nonetheless poses key questions about IT security. Furthermore, the following questions should be answered before considering the use a blockchain solution:

  • Will the network have a small number of participants?
  • Is there a sufficient level of confidence in the network’s other participants?
  • Will a relatively large amount of data be saved for the transactions to be settled? Are the transaction volumes high with regard to the absolute number of transactions or their number per unit of time?
  • Are the business transactions relatively complex and are they subject to confidentiality or data protection requirements?
  • Are perimeter defences or the physical separation of data necessary?
  • Does the exchange of data require a large number of interfaces with other networks or older systems?
  • Is a centralised entity or body required in order to resolve conflicts?
  • Should only one centralised entity be able to validate transactions?
  • Will it be necessary to be able to alter data retroactively?

These questions are provided merely as suggestions. By no means can they substitute the type of individual analysis required before any technology is used.”


Title: Financial Stability Implications from FinTech

Issuer: Financial Stability Board

Date: 27/06/17

Jurisdiction: International

Link: http://www.fsb.org/2017/06/financial-stability-implications-from-fintech/

Description: The Report identifies 10 areas that merit authorities’ attention. Cross-border legal issues and regulatory arrangements. Innovations in cross-border lending, trading and payment transactions, including via smart contracts, raise questions about the cross-jurisdictional compatibility of national legal frameworks. The legal validity and enforceability of smart contracts and other applications of distributed ledger technology (DLT) are in some cases uncertain, and should be discussed further.

Risk for Financial Stability from a Legal/regulatory risk perspective: To the extent that FinTech activities are innovative and are not covered by existing legislation, legal and regulatory frameworks may need to adapt. This could apply across the full range of services, from customer interfaces to backoffice systems and infrastructure. For instance, in some jurisdictions, there are issues of legal uncertainty related to FinTech innovations such as smart contracts or roboadvisors. These and other legal issues could be even more prevalent when considering cross-border activities. For example, blockchain has raised questions, such as data privacy concerns across jurisdictions, and identifying the location of an asset when no one bank or entity is the custodian of the record.  The report also contains a case study on DLT-based wholesale payment systems.


What did we miss? As always, we thoroughly researched this article and hope to have provided a comprehensive overview. If you think, however, that we missed something essential that should be added here, please drop us a line at info@planetcompliance.com


And for more on Blockchain, check out our dedicated section here.



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