Blockchain Regulatory Framework, Legal Challenges and the Financial Industry

Camille Madec

Introduction

In order to stay competitive, financial industry must seize the opportunities of the on-going technological disruption, and particularly with the recent so-called blockchain innovation when some argue that this new technology has the potential to replace banks as financial intermediaries for transfer and exchanges of money. In this transitional context, financial sector could face new cybersecurity risks, with sophisticated attacks, which eventually call for a renewed regulation framework. Here the financial sector means banks, insurers, asset managers, and advisory firms.

Blockchain can be defined as “a peer-to-peer operated public digital ledger that records all transactions executed for a particular asset (…) The Blockchain maintains this record across a network of computers, and anyone on the network can access the ledger. Blockchain is ‘decentralised’ meaning people on the network maintain the ledger, requiring no central or third party intermediary involvement. […] Users known as ‘miners’ use specialized software to look for these time stamped ‘blocks’, verify their accuracy using a special algorithm, and add the block to the chain. The chain maintains chronological order for all blocks added because of these time-stamps.” (Alderman, 2015)

Hence, Blockchain, well known through the so-called bit coin, could open much more perspective and should guaranty security and the validation of all the exchange of data. In addition to open room for new business opportunities, this new technology could disrupt the legal conception of privacy, intellectual property right, and presents some issues regarding financial institution accountability given the new associated risks. As a consequence while financial institutions have been under strengths by the new regulatory requirements in the aftermath of the 2008 financial crisis, they might see their accountability rises again to address cybersecurity risks and associated prejudices related to blockchain innovation.

This paper explains how business compliance to new cyber regulatory framework is a strategic issue for financial institutions. It presents the financial institutions specific data profile and linked eventual collateral damages. It highlights blockchain innovation opportunities and associated new cybercrime challenges. It describes the current European regulatory framework and legal accountability scenarios. It then finally supports the hypothesis of cyber compliance as a corporate competitive advantage and maps out some elements
of potential recommendations to strengthen cybersecurity resilience.

Read the full strategic report here: regulatory compliance and cybersecurity

References

Alderman, P. (2015). Blockchain –emerging legal issues. Lexology, Global.

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