Swiss bank, UBS is leading a pilot that will harness Ethereum smart contracts to
improve data quality ahead of the implementation of the MiFID regulation on the 3rd of January 2018.
Barclays, Credit Suisse, KBC, SIX, Thomson Reuters and UBS are all joining forces to advance MiFID II data reconciliation project using Ethereum smart contracts, which was started by UBS in the innovation lab at London’s Level39.
The new legislative framework aims to strengthen investor protection and improve the functioning of financial markets making them more seamless, resilient and transparent.
Under MiFID II, institutions are expected to have an individual Legal Entity Identifier (LEI). The UBS lead venture aims to streamline reconciliation of the reference data which pertains to the LEI for each entity – such as industry classification, identifiers and European Securities and Markets Authority (ESMA) data.
Christophe Tummers, head of data at UBS, stated: “Traditionally, a firm such as ours quality checks data against multiple sources but we do not have a quality baseline against peers.
“Through using blockchain-inspired smart contracts, the reconciliation of data can happen in almost real-time for all participants, anonymously.”
The specific reference data for each Legal Entity is cryptographically concealed at each institution using hashing, with the source data held and remaining within the participating institution. Only the hashed data is submitted, anonymously, to an Ethereum private blockchain powered by Microsoft Azure.
The Ethereum smart contracts then reconcile the data against the consensus and provide each participant, via a user interface, the ability to search and view their own specific data in real-time. By doing this, users can quickly identify where the anomalies lie in the data set and work to resolve those.
Emmanuel Aidoo, head of blockchain strategy at Credit Suisse, said: “This is an important project as it establishes blockchain benefits in a broader context than clearing and settlement. The use of blockchain to solve real-world regulatory requirements in a cost-effective way is very appealing.”
The project is currently in its pilot phase using 22,000 non-sensitive LEI reference attributes for cash equity issuers. The goal is to complete it by the end of January 2018.