South Africa’s central securities depository (CSD) will leverage the solution to improve voting efficiencies and increase shareholder participation in South AfricaContinue reading
To provide you with a holistic understanding of the impact emerging FinTechs will have on the future of financial services, GIBS partnered with Strate to host the Fintech Innovation Conference during August 2017.
The videos for the following topics are now available online:
- Welcome Remarks from Strate;
- Keynote Address from the Deputy Governor of the SA Reserve Bank;
- Digital Trends and Implications for Financial Services;
- Panel Discussion: Disruptive Technologies, Big Data, Robotics and Artificial Intelligence;
- Panel Discussion: Future of Financial Transactions and Integration – Partnerships, Design Thinking and Customer Centric Innovation; and
- Blockchain and the Disruption of Financial Services.
Please click on the respective topics to access the video directly, or visit Strate’s YouTube channel to watch our videos online.
The 24 financial market players who form part of the SA financial blockchain consortium (SAFBC) have been recognised for their blockchain research efforts in the Banker Technology Projects of the Year Awards 2017. The Banker is owned by the Financial Times and is one of the world’s premier banking and finance resources, read in over 180 countries.
Formed in 2016, the consortium aims to redefine the South African financial system based on blockchain technology, which has tremendous promise to improve transaction speeds and reduce costs that will help address financial exclusion issues. Members of the Fractal Solutions team at Strate Chair the IT Stream of the SAFBC and are the Secretariat as well for the consortium.
Members of the SAFBC are: ABSA, AlexanderForbes, BankservAfrica, Bowmans, Capitec, Curo Fund Services, Citadel Wealth Management, Finswitch, FirstRand, FNB, Ince, Investec, JSE, Nedbank, PASA, Rand Merchant Bank, Sanlam, Silica, Standard Bank, Standard Chartered, Strate, ZAR X, FSB (observer), SARB (observer).
According to the magazine, SAFBC is exploring different technologies, including Ethereum, Chain, Hyperledger and Corda. “The consortium is attempting to show how this technology is a paradigm shifter. The historic assumptions that were taken for granted, such as digital money intimately tied with credit risk against the institution holding the money, as well as the entire concept of fractional-reserve banking, are being questioned, and this questioning is allowing a whole host of possibilities to emerge, pointing to a much better financial system that better serves the needs of customers and clients of the industry, according to SAFBC,” it reads.
The SAFBC acknowledges its collaboration between members as the key recipe for its success.
Four members of the ‘Liquidity Alliance’ (LA), an international group of central securities depositories (CSDs), are cooperating with Deutsche Börse to launch an initiative leveraging blockchain technology to ease cross-border mobilisation of security collateral. With the planned solution, The Canadian Depository for Securities Limited (CDS), Clearstream (Luxembourg), Strate (South Africa) and VPS (Norway) want to overcome existing hurdles when moving collateral across various jurisdictions, making the transfer faster and more efficient.
Following the financial crisis, regulators increasingly require market participants to provide collateral to mitigate risks in the financial system. The Dodd-Frank Act in the U.S. and EMIR in the EU are two important frameworks in this regulatory overhaul leading to a growing demand for high-quality collateral to which access is limited. CSDs are already supporting the market today with real-time collateral management to ensure that exposures can be covered sufficiently and that local collateral can be quickly transferred where it is needed.
Being jointly provided by regulated market infrastructures, the Distributed Ledger Technology (DLT) based ‘LA Ledger’ prototype will enable a centralised, faster and more efficient allocation of fragmented security positions to cover financial obligations of market participants in multiple jurisdictions. The decentralized character of DLT (blockchain) allows for direct interaction between participants giving it the potential to simplify complex processes.
The ‘LA Ledger’ will initially be implemented as a prototype based on the Hyperledger Fabric blockchain. Validation by regulatory authorities and market participants will start in the second quarter of 2017.
“With this initiative, we pursue an innovative partnership approach that will allow us to jointly embark on distributed ledger technology with a use-case that is highly relevant to the wider industry”, said Glenn Goucher, President and Chief Clearing Officer, CDS.
“LA Ledger is designed to simplify cross-border collateralisation away from using multiple complex and non-standardised links towards smooth movement across various jurisdictions”, added John-Arne Haugerud, CEO VPS.
“We look forward to engaging with regulators and market participants to validate the proposed solution”, added Monica Singer, CEO Strate. “We are convinced that integrating this new technology into a permissioned environment of neutral regulated entities is the right way forward.”
“We are proud to be part of this exciting LA Ledger initiative which is adding another leading edge solution to our award-winning suit of collateral management services to the benefit of our mutual clients”, commented Philippe Seyll, Co-CEO Clearstream Banking S.A. at Deutsche Börse Group
All too often, good infrastructure goes unnoticed. This is probably one of the reasons why few South Africans know and understand the country’s Central Securities Depository, Strate, however, without it, investors would shy away from South Africa.
Prior to the implementation of Strate in 1999, SA was categorised as one of the worst emerging markets in terms of operational and settlement risk. Trading volumes on the stock exchange were averaging 4,000 trades daily, very thin when this is compared to the 350 000 on average during a month today.
On 13 October, Strate held its Africa Blockchain Summit in Johannesburg to educate the market about Blockchain and Distributed Ledger Technology. The event was a great success, attended by over 200 delegates. Below are some pictures from the Summit.
Ten blockchain experts, including four international speakers, presented at the event. The following presentations have been made available:
Some pictures from the event:
Blockchain, the online distributed ledger technology, has the potential not only to fundamentally disrupt the global financial services industry, but also disrupt how monetary instruments and assets are transferred, stored and traded.
Leader of Rand Merchant Bank’s ‘Blockchain’ initiative and one of the founders of the bank’s FinTech unit, Farzam Ehsani told a recent forum at the Gordon Institute of Business Science (GIBS), he believes Blockchain technology will be as transformative to our financial system as the internet has been to global communications.
Blockchain is a superior database where stored data is encrypted, and access to the data is also encrypted. The distributed nature of the network across many computers means that it has built-in redundancy and transactions are immutable: It is impossible to alter the record, creating a credible audit trail. On the Blockchain, multiple copies of data exist across multiple computers, creating a peer-to-peer network.
Use of Blockchain has begun to grow beyond its initial deployment for the Bitcoin cryptocurrency system, as a tamper-proof database that can verify the validity of all transactions.
Ehsani explained that until 2009, no one had transferred value digitally from one person to another without a trusted intermediary, such as a bank. The Blockchain protocol makes use of consensus to build trust, as all the computers in the network have to agree whether a transaction is valid or not. This allows for instant and direct settlements and does away with the need for intermediaries.
In the future, financial instruments such as equities, bonds and derivatives, as well as physical assets such as property and cars will be issued onto the Blockchain: “Imagine the possibility of buying or selling a house, and it being transferred into your name, in a matter of not weeks or months, but seconds or minutes,” Ehsani said.
“This is not some crazy unbelievable theory, but will become reality in the not too distant future. There is no question this will happen; it is just a matter of time.”
Blockchain’s potential to transform the financial services industry post-trade means transactions could be streamlined and simplified so as to cut the costs and counterparty risk associated with clearing and settlement.
Ehsani said Blockchain has the ability to disrupt the payments, or value transfer, and value storage offerings that banks currently provide. As value transfer accounts for 40% of total global banking revenue, an opportunity exists for banks to reduce costs.
“Block chain will change the financial landscape,” as central banks could be on the Blockchain network and see all transactions in real time Ehsani said.
While cryptocurrencies are currently non-sovereign, several central banks are considering issuing their own virtual currencies onto the Blockchain, so that the potential exists to transact directly with them, bypassing commercial banks.
Tanya Knowles, head of Innovation and Projects at Strate, South Africa’s authorised Central Securities Depository, explained: “The world is changing and the way we interact is changing. Blockchain has huge potential, not only to make existing processes faster, but also for the peer-to-peer economy.”
While familiarity and adoption of Blockchain technology remains low, Knowles said she believed implementation in emerging markets was likely to be faster, as there aren’t legacy systems and legislation to hold these countries back.
Widespread adoption of the technology is still some time away, but collaboration would be crucial to Blockchain’s ultimate success. This includes collaboration with partners across the financial services industry, as well as regulators and central bank authorities.
Blockchain is forcing South African financial institutions, which are used to competing for market share to adjust to a new, collaborative paradigm, Ehsani explained: “Most money in the future will be on the Blockchain, regulated by central banks. It will allow for instantaneous payments and smart contracts. But it is still very early days for possible revenue models,” he said.
As a technology still in the early stages of its development, Blockchain does have potential pitfalls and unexplored outcomes. The technology is not completely immune to cybercrime, as collusion amongst users could theoretically result in modifications; and regulatory and dispute resolution issues are in their infancy.
Ehsani said the socio-political implications of Blockchain are a cause for concern: The potential exists to penalise a country with a lack of computing power and exclude them from the system, which could cripple a small economy.
However, at this early stage of Blockchain’s development, Ehsani said the most critical task was to gain a clear understanding of what the Blockchain is: “Don’t be deceived that it is just a technology in its infancy, as you may live to regret your decision,” he concluded.
~ This article appeared in the City Press
The Central Securities Depositories (CSDs) Strate, South Africa and NSD, Russia have signed a Letter of Intent at the Sibos event in Geneva in September 2016.
The intention is to forge a partnership between the two CSDs to develop solutions utilizing Distributed Ledger Technology (DLT) with the first use case focused on proxy voting. The parties believe that through industry-wide collaboration, CSDs will be better positioned to face the changes presented by DLT technology and develop innovative solutions for the benefit of the financial market.
DLT, which has emerged as a relatively new and rapidly growing innovative technology, is set to revolutionise the financial markets and fundamentally create a paradigm shift. Given that there is the potential for financial markets to create a distributed ledger that settles securities transactions, financial market infrastructures need to embrace the technology and identify opportunities that will add value to their current clients.
This relationship allows both parties to explore opportunities for mutual cooperation in the post-trade settlement arena including:
* Information sharing regarding standards, regulations and DLT technologies.
* The exploration of solutions that are of mutual benefit to both CSDs; as well as
* Potential cost savings through the sharing of technology and development costs.
A number of other CSDs have expressed interest in joining the partnership and Strate / NSD have welcomed these discussions.
Monica Singer, CEO of Strate, says “It is an important time for CSDs to be working together to define the future landscape in the DLT environment. Strate looks forward to developing this long-standing and valuable relationship with NSD to develop solutions for emerging market CSDs”.
Eddie Astanin, chairman of the executive board, NSD comments “We believe that the securities settlement and custody industry is one of the promising sectors where we can use new technologies. I think that post-trading may become the starting point of transition of the distributed ledger technology and blockchain from theory to practice. In 2015, we began research and initiated new developments; since that time we have developed valuable expertise in this sphere, and now we are eager to share it with our colleagues. “
In April 2016, National Settlement Depository was one of the first financial organizations in the world that announced the development of a blockchain-based prototype of e-proxy voting.
Mr. Astanin added that “fast development of technologies and the huge number of startups that enter the market every month is a challenge of our time for major companies. We have to be one step ahead of everyone else and to use the opportunities we have now. Only the united efforts of the largest players in our industry will enable them to respond to new challenges and integrate new technologies.”
Tanya Knowles, Strate’s former Head of Business and Innovation and now the Executive Director of Fractal Solutions, a Division of Strate, spoke at a Gordon Institute of Business Science (GIBS) Forum to introduce the concept of blockchain and unpack some of the latest developments around this disruptive technology.Continue reading
There is a frenetic and rather exciting energy amongst many financial services institutions. Boardroom debates and conference agendas are quickly morphing from staid conversations on risk management and regulation to fintech, the internet of things and most noteworthy the potential disruption by blockchain technology. As with all new and exciting innovations, there is somewhat of a dichotomy between the technology visionaries and the Luddites of the industry. However, one thing is certain, those operating in the financial markets cannot maintain their current status quo and need to embrace new thinking which is in line with the exciting changes that lie ahead.
No article on blockchain seems complete without describing it as the distributed ledger technology that underpins Bitcoin. Yet industry debates in recent months have matured far beyond this definition to focus on the additional applications of this technology.
At a high level, a blockchain is a single distributed ledger that anyone can view, with the option of no single participant or authority in control. It is collectively kept up-to-date and transactions are immutably recorded and cryptographically stored. The technology has the potential to provide credibility and trust to the ecosystem with built-in smart logic and high levels of automation.
The problem today is that many organisations seem to be trapped in the hype of analysing the intricacies of the technology, conducting due diligences on thousands of fintech start-ups and generally focusing on how to protect their legacy business. While some of these are necessary evils, there is a lot to be said for taking a step back to look at the principles (See diagram 1) behind blockchain technology and how those can be applied to optimise, innovate, challenge and grow one’s business for the benefits of the customer.
The question that comes to mind is how the financial services industry can apply the principles of blockchain technology to an industry that has become increasingly complex and overly cumbersome. This is not the time to just be substituting existing operating models and systems with blockchain technology but rather realising that there is a completely new paradigm of thinking – one which fundamentally alters the way in which our industry and society hangs together in an entirely new, different and better way.
As a short-term reprieve, the reality is that regulators are not going to allow blockchain technology and fintech start-up to ‘take-over’ the financial markets overnight. This is the most highly regulated industry – the fabric upon which the world’s economy operates. However, they are also not going to sit back and protect legacy businesses when there is real value and benefits to be found. A number of regulators are already showing a strong interest in blockchain technology and the industry is moving at an unprecedented rate that one cannot depend on regulatory protection indefinitely.
It is through truly understanding and applying the principles of what blockchain offers that the industry can begin to have a completely different and rewarding conversation around the future of financial services. Without this, regulation will catch up and fintechs will continue to legitimately offer new and better services to customers – profoundly shifting the balance of power away from established business. Innovative thinking around blockchain’s principles needs to be harnessed for an organisation to thrive and not just survive.
Author: Tanya Knowles, Executive Director of Fractal Solutions, a Division of Strate (South Africa’s Central Securities Depository).