The EU Commission continues to show its support and investment in new technologies in the digital economy. On February 1, 2018, the Commission and the European Parliament launched the EU Blockchain Observatory and Forum, and earlier this month, the Commission also unveiled its FinTech Action Plan.
The Blockchain Observatory
The observatory is designed to be a comprehensive repository of blockchain expertise and a source of innovation and development. It brings together policymakers, technology experts, regulators, businesses and users with the goal of building on new opportunities offered by the blockchain technology. The initiative forms part of the drive towards the digital single market, a Commission strategy to boost e-commerce, modernize regulations and promote the digital economy. The observatory also aims to support the interoperability of blockchain, which is the ability of computer systems and software to exchange and utilize information without restrictions. It also seeks to address the varied challenges in the blockchain ecosystem – such as trust, compliance, security, traceability by design, among other issues.
The EU Commission has also called for a feasibility study on the opportunity of an EU blockchain infrastructure, with tenders closed in January. The study will research the opportunity, benefits and challenges of an enabling framework supporting blockchain-based services, and whether EU services could run on such an infrastructure.
What is blockchain?
Blockchain has been described in many ways, but it is essentially a distributed ledger technology. Each transaction is stored with other transactions in blocks of data that are securely linked together, forming a “chain” of records (thereby giving rise to the “blockchain” term). In other words, it is a secured ledger maintained simultaneously across a computer network community, containing encrypted information on the complete chain of transactions performed by its constituents. Blockchain allows for the decentralized storage of information, with copies of the chain preventing data loss. Each piece of information, or block, is linked to the rest of the chain through encryption and each one referencing the next, making it tamper-proof. This structure gives blockchain the capabilities to implement or replace any central repository of information that requires protection or trust as to its integrity.
The business applicability of blockchain is vast, ranging from dis-intermediation (shortening the link between the consumer and producer) by enabling peer-to-peer exchanges without a centralized platform or intermediary, cryptocurrencies and initial coin offerings, secure storage, smart contracts and more. For more information about blockchain’s structure, application, potential and regulatory treatment, please see Reed Smith’s comprehensive whitepaper.
FinTech Action Plan
On March 8, 2018, the European Commission unveiled its FinTech Action Plan on how to harness opportunities presented by technology-enabled innovation in financial services. The action plan will assist EU businesses and investors utilize advances offered by blockchain, artificial intelligence and cloud services, as part of the push towards the digital single market.
The key elements of the action plan are:
- An EU FinTech Laboratory, engaging tech providers in neutral, non-commercial spaces.
- Having the Blockchain Observatory report on the challenges and opportunities of cryptocurrencies later in 2018, and work on a comprehensive distributed ledger strategy, addressing all sectors of the economy.
- A consultation on promoting the digitization of information published by listed companies in Europe, including using innovative tech to interconnect national databases.
- Running workshops on improving information-sharing relating to cybersecurity.
- Presenting a blueprint of best practices on regulatory sandboxes (mechanisms for developing new applications alongside regulators), based on guidance from European supervisory authorities.
Last year’s public consultation by the Commission resulted in many respondents noting that FinTech and technological innovation generally are driving the financial sector’s growth and development, especially with regard to operational efficiency, access to financing, cost saving and competition. The observatory and the FinTech Action Plan represent a collaborative and thoughtful approach that is appropriate for addressing quickly proliferating and developing technologies in a highly regulated international financial industry.