The lack of global financial industry data standards for financial instruments has created chaos for digital currency startups and the financial sector as a whole. Even more devastating is the intensification effect this lack of standards has had during recent financial crises. The ACTUS project aims to mitigate these problems by creating and implementing international, blockchain-based data standards at the regulatory level.
Excessive Regulatory Approaches to Bitcoin
Confusion is becoming increasingly acute in the digital currency industry as new regulations hit the ecosystem, creating more chaos. As a result, high compliance costs, added financial risks, and overall inefficiencies abound.
Around the world, there is regulatory mayhem. A few countries have tried to harness Bitcoin into their regulatory frameworks, while others have sat idle.
Japan has recognized digital currencies as money, for example, while Ecuador has banned Bitcoin outright and opted to create its own digital currency. In the middle of these extremes are countries like Brazil, Chile, Cyprus, Greece, Estonia and Israel, who have not yet issued specific legislation on Bitcoin.
Confusion also reigns in the United States, as different states of the Union have passed different legislation relating to money transmission and digital currencies.
The most notorious instance of state level regulation to date is the New York-issued BitLicense, a framework for how businesses dealing with bitcoins and other digital currencies can operate in the state.
New York’s BitLicense regulations forced major Bitcoin business to leave the state in droves.
Since the BitLicense went into effect, other states have followed suit with a variety of legal approaches and different requirements. The most recent being California, which has worked since 2015 to pass its own version of New York’s BitLicense regulations.
However, lawmakers have suspended discussions on Bill No. 1326 until January 2017. This suspension has put a smile on the face of supporters of digital currencies because they considered the proposed bill to have vague language and be unfavorable to cryptocurrency startups.
These varying, state-by-state laws regarding digital currency creates a tangled web of rules that startups are forced to navigate, often unsuccessfully.
According to Coin Center, in the U.S., “Many fintech firms will often be found to be a money services business and, more narrowly, a money transmitter. As a money transmitter, a firm must be prepared to interface with multiple federal regulators as well as regulators in every one of the several states wherein they have or expect to have customers. Little coordination exists between these several regulatory bodies and conflicting approaches and non-uniformity abound.”
To keep some sense of clarity in this regulatory labyrinth, Coin Center is maintaining a state-by-state tracker on regulations.
The ACTUS Project
Inconsistent regulatory frameworks are not the only impediments making it difficult for digital currency startups to comply fully with regulations.
Lack of standards for financial data representation exacerbates the problems by creating inefficiencies and increasing financial risks.
According to the ACTUS Financial Research Foundation, “The 2008 financial crisis made one fact indisputably clear: financial policy officials, regulators, and company executives lacked the data and analytics to understand what was going on. Fateful decisions by very high-level officials – made without the necessary data and analytics – turned a difficult situation into a full-blown crisis.”
This topic worries digital currencies entrepreneurs and consumers, as well as leaders in the banking and fintech industries. In fact, the need for data standards was one of the hot topics at The Blockchains + Digital Currencies conference that was held on July 28, 2016, in New York.
During the “Data Standards and Systemic Transparency: Can Blockchain help?” session, Allen Mendelowitz, President, ACTUS, explained how standards would bring clarity and transparency. He pointed out that “a few financial institutions have adopted some standards. However, the problem is that there are too many standards.”
Consequently, the ACTUS project aims to establish “a global data standard for the representation of financial instruments to support forward-looking financial analysis of granular transaction and position data.” Specific objectives of the ACTUS project are:
- Standardize internal representation of financial data across the financial organization
- Improve enterprise risk management
- Significantly reduce the cost and time of stress tests
- Reduce regulatory burdens while improving regulation
- Provide the foundation for monitoring threats to financial stability
- Open new avenues for financial research
- Contribute to more efficient and transparent financial markets
Blockchain-based Financial Data Standards Can Help
At the Blockchains + Digital Currencies conference, Thomas Day, Co-Managing Partner, FinRenaissance, reminded the audience that financial inefficiencies are “horrible.”
“There is 65 percent efficiency ratio. So, a one percentage reduction would increase the bottom line dramatically,” said Day.
Panelists concurred that global, open data standards are fundamental for financial contracts. As Day put it, “before smart contracts, we need standards,” to which Medowitz added, “These standards have to be global; otherwise, smart contracts will not work.”
Hopefully, Coin Center will be successful in educating policy makers about cryptocurrency technology and promoting a harmonized regulatory environment that will enable cryptocurrency businesses to flourish.
We already have in place Bitcoin and its blockchain technology, which can serve as the credible network, on which projects aiming to standardize financial data and reduce regulatory burdens, such as ACTUS, can succeed and transform the financial industry.
Granted, adopting new standards is difficult, expensive, and takes a long time, said co-panelist Chris Betz, Senior Advisor for Blockchain and Fintech, EDM Council. Then, he added, “Except if there is an event, and this event is Blockchain.”
Do you think Bitcoin blockchain technology can help to standardize financial data for the representation of financial instruments? Let us know your comments below!
Images courtesy of Wikimedia commons, ACTUS.
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