In a speech yesterday, Nikhil Rathi, CEO of the UK regulator the Financial conduct authority (FCA), said its blockchain regulatory reporting initiative was progressing.
He estimated that regulatory reporting costs businesses from Â£ 1.5bn ($ 2bn) to Â£ 4bn ($ 5.5bn) per year with 20,000 rules across 58,000 companies.
The Digital Regulatory Reporting Initiative (DRR) is a joint project with the Bank of England that will provide the ability to connect to blockchain or via APIs to provide regulatory reporting. When launched, it will not only save businesses money, but should also enable near real-time compliance checks. The exploratory initiative started in 2018 and is currently in its third phase.
Previous phases recommended a decentralized solution where companies can develop their own standards-compliant software. Therefore, a key requirement is to standardize the data. The current phase is focusing on the data side, creating a dictionary and regulatory rulebook.
In the second phase, one of the avenues explored under DRR was the Common Domain Model (CDM) developed by the ISDA Derivatives Association, covering standards for both data and processes. Although CDM is not specific to blockchain, it has been adopted by several blockchain solutions.
However, to our knowledge, the FCA project simply studied CDM with Rosetta DSL, a domain-specific language developed by RegnoSys, ISDA’s regtech partner for CDM.
Not only is the ISDA CDM adopted in derivatives, it has collaborated with other sectors. For example, the ICMA Securities Association is in the process of creating a CDM for the pensions and bond sectors. Likewise, the securities lending association ISLA has also developed a CDM in collaboration with RegnoSys.
Given the increasing use of blockchain in capital markets, it is likely that other organizations will also consider developing CDMs in their industries.
Meanwhile, the CEO of FCA also mentioned that his sandbox was being used for the first offering of regulated security tokens.