Money, minds drawn to distributed ledger tech

28 August 2016 - 02:00 By DINEO TSAMELA

As ideas based on distributed ledger technology such as blockchain gain momentum globally, financial institutions are investing more resources in exploring how these technologies can be used to facilitate efficient transactions. R3, a global consortium that is dedicated to exploring technologies such as blockchain, aims to bring banking institutions together to find common cause.For Fred Swanepoel, chief information officer at Nedbank, the value of initiatives such as R3 lies in the "global collaboration and sharing that it brings to member institutions, meaning that information, costs and learnings can be shared".But bringing distributed ledgers into mainstream banking functions will not happen overnight, because different companies have different needs.Andrew Baker, chief information officer for corporate and investment banking at Barclays Africa, said: "If it's difficult to get a domestic consensus, can you imagine how problematic it is for something like international payments systems to get that right. So we joined R3 after having a good look at what they have behind the scenes."A distributed ledger is a transaction centre where data that has been shared across various institutions can be accessed. Distributed ledger technologies give users direct access to validated records in the shared database, or ledger, without the necessity of a clearing system.Those who are part of such a system benefit from real-time and secure data sharing.Blockchain is a prominent type of distributed ledger technology , but there are other types, such as Corda, currently being developed by R3, as well as Multichain and Ripple, to name a few.In terms of users' participation, the technologies can be divided into those that are restricted and those that are unrestricted.Programmes such as Corda are closed distributed ledgers whose participants are authorised and accountable entities. Updates to the ledgers as well as the dissemination of information to relevant parties can only be validated by those with the authority to do so. This way, banks can process transactions without jeopardising sensitive company information. It also means that regulatory bodies have access to the information they need without compromising on privacy.Tim Grant, the MD of R3, said there was "no sense that there's a 'one size fits all' solution or strategy. It's not like we're just going to wake up and we've moved into a new paradigm of distributed ledgers."Platforms such as Corda are still in a developmental and experimental stage. Their effectiveness still needed to be evaluated through a proof of technology phase, and benchmarked against other distributed ledger platforms, said Swanepoel. In such a fast-developing arena, "it is prudent to have an open-minded approach" .In line with Absa and Nedbank, FirstRand bank had also set up a dedicated team of experts that had built blockchain prototypes and were collaborating with institutions across South Africa, said Farzam Ehsani, a leader in RMB's fintech unit, Foundery.He said it would be difficult to gauge which platform would be most efficient for banking institutions as it was still early days.Baker concurred: "It's going to be a long journey for financial services to go from here to where the promise of distributed ledger technology might lead us."For regulatory bodies such as the Financial Services Board,interest in the technology lies in the post-trade environment, particularly in the central securities depository area.Bert Chanetsa, the board's deputy executive officer, said: "It's a very exciting technology. As with anything exciting and new, one has to tread carefully. As a regulator ... we have to look at all the risk areas because of the possible devastation that could occur in the event of a failure."..

This article is reserved for Sunday Times subscribers.

A subscription gives you full digital access to all Sunday Times content.

Already subscribed? Simply sign in below.

Registered on the BusinessLIVE, Business Day, Financial Mail or Rand Daily Mail websites? Sign in with the same details.

Questions or problems? Email or call 0860 52 52 00.