An architecture for blockchain in financial markets

Banks are starting to understand the potential of blockchain and to invest in learning more. RBS is one of nine founders of the R3 consortium,

set up in September 2015 for members to work together on a framework and architecture for using blockchain in financial markets. Other members of the group include Barclays, Goldman Sachs, UBS and JP Morgan.

“A year ago people were scared,” said UBS CIO Oliver Bussman. “Everybody agreed that the one topic we wanted to work together on is blockchain. The banks are getting ready to understand the impact and the use cases, and also to understand that collaboration and open standards, like the R3 consortium, is necessary. Regulators are actively involved in the discussion too. It’s only possible if we have critical mass in the industry and agree upon standards.”

This technology has forced us to rethink our entire value chain in a way we have never done before
Leda GlyptisHead of Emea innovation centre, Bank of New York Mellon

Simon Taylor, vice-president of blockchain R&D at Barclays, said 10 people would still give 10 different definitions of blockchain, but it is high on everyone’s agenda.

“The question has gone from why blockchain, to how. We’re not questioning why to do this any more, that argument has been won. The argument is how – which workflow, which form, with which standards?” he said.

“The jigsaw puzzle is still missing a lot of pieces, and having the right forums to put those together as a group is really important because this is market infrastructure we’re talking about.”

The difficulty for banks is that while they can see the potential and the threat, it’s hard to justify investment in conventional ways.

“We have looked at one or two use cases for this technology, but it’s not easy because use cases normally come along with a business case, and that is proving quite challenging. Use cases are one thing, and credible businesses cases are the next thing,” said Stephan Müller, group CIO at Commerzbank.

“People are used to working in a hub-and-spoke system, where the hub is the central authority that has done all the security and the standardisation work. But with distributed ledgers, how do you gain the same trust as you have in a hub-and-spoke system? Moving money about is all about trust.”