FCA Pins Hopes For Efficient Compliance On Blockchain

September 24, 2021
Regulatory reporting on the blockchain could ensure that compliance checks happen in real time, the chief executive of the UK’s Financial Conduct Authority (FCA) has said.

Regulatory reporting on the blockchain could ensure that compliance checks happen in real time, the chief executive of the UK’s Financial Conduct Authority (FCA) has said.

While discussing some digital opportunities that the FCA is keen to take, Nikhil Rathi told attendees at the Lord Mayor’s Banquet that his organisation plans to use blockchain technology to cut the time that firms have to spend on the reports that they send to it.

“Regulatory reports are estimated to cost between £1.5bn to £4bn a year, with 20,000 rules across 58,000 firms,” he said, pointing out that that is why the FCA is now working with the Bank of England on a Digital Regulatory Reporting (DRR) Initiative.

First announced in 2017, the purpose of DRR is to reduce the regulatory reporting burden on firms by making the process more efficient, while at the same time improving the quality of the 500,000 scheduled regulatory reports that the financial regulatory body receives every year.

“By connecting to firms through blockchain and Application Programming Interface (API) technology and implementing machine-readable and executable regulation, compliance checks can be completed in near real-time,” he said.

The Bank for International Settlements (BIS) has already touted the use of blockchain technology for financial supervision in a discussion paper by Raphael Auer, its principal economist, in 2019.

The BIS argued that that asset tokenisation and its underlying distributed ledger technology (DLT) can open up new ways in which supervisors can tackle financial risks at firms, putting forward the case for “embedded supervision”.

This process could allow regulators such as the FCA to monitor firms’ compliance with its goals automatically by reading a financial market's ledger. This could reduce the need for firms to collect, verify and deliver data.

The FCA is also looking to impose a tighter regulatory grip on data, Rathi hinted. “We will also be regulating more data-heavy businesses, and as demand for data increases, firms may be able to use, market or restrict data in ways which create poor user outcomes,” he said.

The FCA’s goal of becoming a “data and digital first” regulator is leading it to invest £120m over three years to further its use of cloud technology.

“We anticipate, particularly as we explore expansion into a new Leeds office, hiring significantly more data scientists and data analysts,” he said.

Rathi, a former civil servant and chief executive of the London Stock Exchange Group, also discussed his first year as chief executive of the FCA, having taken over the job from Andrew Bailey, who now heads up the Bank of England.

“Another thing I have learnt a year into my term as CEO of the FCA is that an email from our press team can either make or derail your day,” he said, making light of recent headlines about the FCA’s chairperson criticising Kim Kardashian for her promotion of crypto-products.

“The email I received two weeks ago featuring articles picturing our chairman, Charles Randell, alongside Kim Kardashian, did both. At first I wondered whether he had got into a Twitter spat about the last season of ‘Keeping up with the Kardashians,’ again.”

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