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Bitcoin, Blockchain and the Future (updated)

Tuesday 14 February 2017

Correction Notice: This is an updated version of an interveiw originally published on the February 9th. It has been republished to with the final reponses to the interveiw questions below. 

Oliver Harvey, head of the Markets Infrastructure team at  Australian Securities and Investments Commission (ASIC), talks to the GRC Professional about the future of bitcoin and blockchain in the Australian financial market.


Do you think there is an appreciation of the risks digital currencies and the blockchain can pose to the integrity of the markets by Industry? 
As a starting point, it’s worth remembering the technology to which we are referring is not new—bitcoin for example, has been around for a number of years now.

It is true though, that the use cases and the application of those technologies to more mainstream financial markets, is continuing to evolve and develop. And, as you would expect in this type of environment, there is a broad spectrum of understanding  when it comes to the potential risks and benefits that these types of technologies can offer. That is not something I would describe as particular to the Australian financial market – it is something also unfolding overseas in markets and with regulators we work closely with.

What we have seen certainly in the Australian market over the last 12-24 months, however, is a greater interest across the market in understanding where and how these technologies can create value and where the risks might lie. There is a growing focus on getting a handle on where a wide range of market participants might use these technologies, as well as what benefits they offer and the efficiencies they might drive.

In this context, we continue to work with industry through a range of avenues including ASIC’s innovation hub. We also work with people who don’t necessarily come to us through the ASIC innovation hub, but who also have a broader use case for DLT. We interact with them the same way we interact with a range of solution providers.

What are some of the major risks you see when it comes to the blockchain and use of digital currencies that are buttressed by the blockchain?
At a general level most financial service providers, and most financial infrastructure providers, have obligations which require them to have appropriate risk management systems and appropriate technological resources to support their business offering. We view these statutory obligations as being technology neutral and continue to see them as an appropriate starting point for any risk assessment.

In the context of DLT, there will inevitably be—as with any other form of technology—nuanced considerations to ensuring these obligations are met. Examples include: the governance and rules framework for any DLT offering; who has access as a user and on what basis the particular solution is being offered to different types of users; what data is held on the DLT, and how data and privacy issues are dealt with (that one is very important); and finally, what the specific nature of any trade-off might be between potentially competing objectives of things like the robustness versus the scalability and costs associated with a particular offering.

Similar topics are also worth considering in the context of digital currencies. More broadly, overseas regulators and some here have raised concerns about the use of some digital currencies for money laundering and other illegal activities. Some of these including other risks, are set out on ASIC’s MoneySmart website.

There is a concern for digital currency exchanges that the coming regulations intended to cover digital currencies will not ensure ‘regulatory certainty’ for the banking partners. Are you working with other regulatory entities to ensure consistent and holistic legislation that will preserve this regulatory certainty?
We have strong working relationships with other regulators who have an interest in the area such as the RBA, ATO and AUSTRAC. The ACCC also has a natural interest where competition issues (like barriers to entry) might be relevant. Clearly, we recognise the importance of having a coordinated regulatory position on these issues. That, really, is the overarching strategic expectation we have when we interact with those regulatory agencies, with a view to providing a set of consistent and coherent regulatory principles. Looking beyond our shores to global regulatory approaches, a few countries have explicitly discussed the possibility of digital versions of their existing currency and the Bank of England, Bank of Canada and the People's Bank of China have all indicated they are exploring the topic to varying degrees. We naturally pay close attention to the thinking being done in this space.

More broadly in areas like DLT, ASIC, the RBA, APRA, Treasury and AUSTRAC are part of a cross agency working group. We are also heavily tapped in to regulatory approaches and considerations that are taking place overseas – all with a view to ensuring our approach here is considered in the context of the global financial market in which we operate. Australia has also been prominent in the ongoing development of global standards for block chain technology with organisations like Standards Australia taking particularly important international leadership roles.

Any general advice to give out to risk and compliance professionals in regards to digital currency exchanges?
As cash and cheques continue to fall as a mode for retail payments, interest is inevitably growing in other payment methods. In the short-term, there will be growth in existing electronic payment methods, including card payments in their various forms. In the medium-term, we will likely see new payment methods and systems including those that will be enabled by the New Payments Platform.

With all these developments it’s natural to assume that there will be continued interest in  the viability of things like privately-established virtual currencies. There is of course some ongoing question about the likelihood of virtual currencies like Bitcoin, with its significant price volatility, ever displacing well-established, low-inflation national currencies in terms of usage within individual economies. Nevertheless, like most things in the world of finance and technology, the viability and sustainability of a new product is very much predicated on users’ trust in the product. We see risk and compliance professionals playing a very important role in the integrity and robustness of the businesses they support and products they help develop.

Any risk and compliance-related advice to give to potential banking partners?
I think, in many respects, I would say exactly the same thing. Again, we see trust as an element critical to the enduring success of any type of new technology related product or service. Having that strong, coordinated expectation—that is, making it clear that risk and compliance professionals play a vital part in ensuring that what comes out of the business -  is critical to the ongoing sustainability of the technological changes we are seeing.

What kind of future do you see for digital currencies and the blockchain in the Australian financial system?
In our experience, most large-to-medium organisations are exploring the viability and the potential value of this type of technology. Some are further progressed than others, but most are well in to evaluating what the technology may mean for them, both as a threat and an opportunity for their business.

At the smaller end of the market, approaches vary more widely. Some small businesses – particularly those in the Fintech industry - are naturally all about adopting and driving some of the most exciting thinking on blockchain technology and digital currencies.  We have to date though only seen a small number of these – when compared with overall business models - approach us through ASIC’s innovation hub. We do, however, anticipate that will grow.

It’s probably worth remembering that it’s not just the financial market area that has the potential to develop DLT. In the broader economy, we can see examples where DLT solutions might be of increasing value—such as in things like supply chain management.

The nature of the financial marketplace is such that it tends to be an early and dynamic adopter of new technology solutions. But neither do we think, by any stretch, that it will be the sole focus for the deployment of these types of technologies. 


Oliver Harvey leads ASIC's Markets Infrastructure team, and has primary ASIC responsibility for oversight of market macro and micro structure issues, particularly in respect of financial market operators and post-trade services providers. Of recent times, his work has had a particular focus on innovations and developments across the whole area of financial markets, including OTC derivative reform following the global financial crisis. Oliver also leads ASIC's working group on cyber resilience and block chain technology. Prior to joining ASIC, Oliver worked with McKinsey & Company in their New York Office, in the Global Corporate & Institutional Banking Practice. In that role, Oliver served a number of clients, including large exchanges, investment banks and professional services firms. Oliver is a qualified lawyer and commenced his career with a major international law firm