Guernsey: Bitcoin, Blockchain, Distributed Ledger – Hype Or Reality?

Last Updated: 26 October 2017
Article by Nick Vermeulen

Most Read Contributor in Guernsey, October 2018

Writing on behalf of the Guernsey Investment Fund Association, Nick Vermeulen, PwC's CI head of advisory, takes a look at the evolution of blockchain and touches on how Guernsey's financial services industry is once again remaining nimble and relevant with the introduction of this new technology in the fund marketplace.

Bitcoin was released in 2009 as a digital currency system via a simple posting to a niche mailing list. As the charts below demonstrate, over time interest has grown not only in the digital currency, but also in the underlying blockchain and distributed ledger technology. This interest has morphed into a global movement that, according to the World Economic Forum, will become the 'beating heart of finance' within five years. The underlying technology has the potential to transform not only each industry that it touches, but also the internet itself by bringing in a level of security that is clearly needed. So, what does this technology mean to us in industry and specifically within the Guernsey funds sector?

Use cases

Blockchain technology has the potential to fundamentally transform interactions across almost every industry – from media and entertainment, to logistics and supply chain, medicines and patient care, energy trading and loyalty programmes, through to government and military applications and, of course, the financial services industry (and specifically the funds industry).

What is key to all of these use cases is the elimination of friction. The blockchain movement is following a path established by earlier technology revolutions. In the '90s we saw the adoption of the internet which removed friction from the creation and distribution of information and content. This transformed publishing and music. In the '00s we saw the app store concept remove the friction from the software market with an explosion of apps. The blockchain movement removes friction along three key axes: control, trust and value. This is demonstrated by the fact that increased trust has allowed numerous players to use bitcoin to transfer value between each other without the need for a central bank controlling the process.

The removal of this friction will have a similar impact on financial services to which the dematerialisation of stock certificates had on share trading in the '80s.

Potential use cases

Consortiums and collaboration will be key

In the same way that the users on Silk Road were initially key to the expanding use of Bitcoin, consortiums of end users will be key to the adoption of new technologies within their respective industries. The interaction between such consortium and their respective technology platforms will be important. We are already seeing such groups forming with Nestle and Unilever joining IBM, Wal-Mart and others to remove friction from the food supply chain. Similarly, Barclays, Credit Suisse, CIBC, HSBC and State Street have joined UBS's 'utility settlement coin' project with the aim of settlement and clearing over the platform.

Guernsey's role

Guernsey continues to look at how it can assist such consortiums and has already been home to two global blockchain firsts in the past nine months. The first saw Northern Trust's Guernsey office in collaboration with IBM and other key stakeholders launch the first commercial deployment of blockchain technology for the private equity market, while the second involved Dom Re IC Limited, a Guernsey-domiciled insurance linked securities (ILS) reinsurance transformer and incorporated cell of Solidum Re (Guernsey) ICC Limited, issue the first notes ever to have been digitised on a private blockchain.

We have historically prided ourselves about being nimble with the ability to connect up the necessary players to make it easy to do business in Guernsey. These will be the attributes that such consortiums are expecting. As has been demonstrated by the ILS and private equity projects, Guernsey has a regulator and government, who are both accepting of the advantages the technology can bring. Indeed, Unigestion, the Geneva-based asset manager who was first to utilise the Northern Trust blockchain solution, said they opted for a Guernsey-based fund on the basis that the use of blockchain had already been approved by the Guernsey authorities.

Justin Chapman, Global Head of Market Advocacy & Innovation at Northern Trust, noted: "Launching the Northern Trust private equity Blockchain solution in Guernsey was made easier by the close partnerships between the different firms on the island and the support of the Guernsey Government and the Guernsey regulator. Building and launching products using new innovative technology needs this level of collaboration and Guernsey has proved a good place to innovate and deliver new solutions."

Colin Vaudin, Chief Information Officer, at the States of Guernsey, said facilitating innovation was a key aim.

"Not only does Guernsey provide easy access to key decision makers and the ability to innovate quickly, it also has the breadth of experience and expertise to turn technology concepts into viable commercial products and services," explains Vaudin.

"Blockchain is but one example where a developing technology solution [in this case blockchain] has been aligned with a real world financial services problem that it can solve. Blockchain in the private equity sector has, through the combined effort of Guernsey, been converted from an interesting concept to a high value commercial reality. Whatever is next in the evolution of technology for the financial sector, be it artificial intelligence (AI), electronic agents or data trustees, we are confident Guernsey can provide the testbed."

Tom Carey, Partner at law firm Carey Olsen, added: "Guernsey's current legal and regulatory framework is no impediment to the establishment of blockchain solutions on the island as has been recently demonstrated. Government can further facilitate the use of this technology by putting in place legislation to deal with the development of AI, smart contracts and transactions between electronic agents. Government has the opportunity to make Guernsey law the go-to choice of governing law for blockchain solutions."    

Guernsey has demonstrated that it continues to be adaptive and can bring innovative solutions to its global client base, but Guernsey needs to ensure that the funds industry and all its key players are attuned to the opportunities that may be presented.

Such opportunities, if grasped properly, can ensure that the key markets we operate in, such as private equity and infrastructure for large pension investors, remain in the island. Going forward, the hope would be to see such vehicles recording investor details and the funds' underlying investments on a platform that makes them tradeable in electronic form. This should add liquidity to the secondary market for private equity which can only be good for one of our cornerstone industries.

Similarly, if Guernsey is open enough, blockchain solutions could even be utilised to reinvigorate markets such as open-ended funds, as the technology will lower the man power required to run these types of vehicles, or even allow us to enter completely new markets such as trade finance.

Conclusion

As we can see, Guernsey is already playing an important role in the deployment of blockchain with the ILS and private equity solutions noted earlier. In doing so, the island has once again been able to demonstrate that it is an innovative and progressive place to do business. That said, should any international finance centre, including Guernsey, fail to grasp future opportunities within the digital and technological space as they emerge, then questions would have to be asked about their ability to remain relevant.

We owe it to future generations to seize the opportunities that present themselves. So, our challenge is to take the hype surrounding blockchain and make it reality within our industries – as a minimum. Disrupt or be disrupted are our choices.

---------------

http://www3.weforum.org/docs/WEF_The_future_of_financial_infrastructure.pdf

http://www3.weforum.org/docs/WEF_Realizing_Potential_Blockchain.pdf

An original version of this article was first published by Hedgeweek, October 2017.

For more information about Guernsey's finance industry please visit www.guernseyfinance.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions