BIS suggests regulators use blockchain for bank supervision

This week the Bank for International Settlements (BIS), the organization owned by 60 central banks, published a paper entitled “Embedded supervision: how to build regulation into blockchain finance.” The document authored by principal economist Raphael Auer considers how current financial market infrastructures might evolve to use distributed ledger technology (DLT). And in turn, those distributed ledgers could enable automated supervision. The document isn’t dealing with the current scenario of cryptocurrencies sidestepping anti-money laundering rules. Instead, it explores the supervision of financial markets if they evolve into DLT-based markets which may not have trusted intermediaries or central counterparties. It also explicitly assumes permissioned blockchains which contractually ensures participant liabilities and on-chain digital assets are tightly linked with the underlying asset. For example, the link between a token and the related real estate. The principle of “same risk, same regulation” has been raised by regulators many times when it comes to cryptocurrencies and digital assets. However, the paper suggests that although the regulation – the writing of rules – should be technology-neutral, how those regulations are policed should evolve with the underlying technology. In other words, use blockchain as a supervision tool to monitor digital asset transactions. The author coins the phrase “embedded supervision”.

Article continues …

---