Blockchain Technology: New Opportunities for Business and Regulatory Perspectives

IBC Meeting, Barcelona

Sue McLean

1 New opportunities for business

© 2018 Baker McKenzie

Will blockchain change the world?

3

Technology behind bitcoin Early stage of development Significant interest from

corporates, regulators, governments

Evangelicals v. pragmatists

"The most potentially transformative technology since the Internet"

© 2018 Baker McKenzie

Key benefits of blockchain

4

Creates trust where none exists A transparent, single source of truth Secure and (virtually) tamper-proof Reduces transaction time and cost

© 2018 Baker McKenzie

Use cases

5

Payments Reconciliation Securities

FinancialServices Pharma Creative

services Public sector

Retail EMI Real Estate

Applications across industries

Nature

Supply chain Record keeping Asset management

Digital identity Compliance Smart contracts

© 2018 Baker McKenzie

Potential impact on banking & finance

6

40+ Use Cases being explored, including:

Payments Post Trade Clearing & Settlement Trade Finance

Trading Platforms

Identity Management

Syndicated Loans

Invoice Finance Asset Management

Claims Management

£¥

© 2018 Baker McKenzie

Drivers

7

Increase efficiencies

Reduce costs

Reduce complexity / improve transparency

Improve customer experience

Real time availability / attestation

Fraud prevention

Improve risk management

Improve reliability and accuracy of data

Improve privacy & security

Compete with disruptors

2 Blockchain and the law

© 2018 Baker McKenzie

Current legal landscape

9

Law is always playing catch-up

Limited blockchain legal and regulatory developments globally

Regulators generally taking a 'wait and see approach'

Regulatory Sandboxes

For now, apply existing law to each case

Monitor legal developments

"The FCA continues to monitor the development of this technology but is yet to take a stance until its application is clearer"

"Government needs to consider regulatory framework [for DLT]. Regulation will need to evolve in parallel with development of new implementations and applications"

"Unclear regulatory environment and legal risks identified as key challenges

to DLT adoption"

© 2018 Baker McKenzie

No one-size-fits-all approach Depends on use case and nature of technology (and, in particular,

whether public/private) Needs multi-disciplinary legal team

Blockchain and legal issues

10

"It depends"

data privacy governing law and

jurisdiction who would

regulate?

Issues which could be relevant include:

regulatory compliance

contract law consumer protection competition law

corporate law securities law intellectual property dispute resolution

© 2018 Baker McKenzie

Smart contracts

11

Not smart, nor contracts!

Application layer on top of ledger

Programmable transactions —computerised transaction protocols that recognise fulfilment of conditions and automatically execute terms of a contract

Role of Oracles

Code is/isn't law

Programming language v. legal language

Legally enforceable smart contracts

"The application layer that makes the promise of blockchain technology a reality "

© 2018 Baker McKenzie

Practical legal considerations

12

IP Strategy New tech, but fast moving — wave of patents Emergence of industry standards would be

helpful

How to contract for blockchain Analogies can be drawn Similar to any complex tech development/

service project

Nature of contracts Consortium agreements Proof of concepts/pilots Consumer terms

3 Regulation of ICOs

© 2018 Baker McKenzie

Initial Coin Offerings / Token Events

14

Token Sales are increasingly financing method of choice for blockchain start-ups

Legal and regulatory concerns

Wave of regulatory activity and investor warnings

Questions: law and jurisdiction regulatory compliance

nature of token? vetting of participants

token sale terms consumer protection data protection tax

© 2018 Baker McKenzie

Regulatory Position on ICOs

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Approach Jurisdictions

Legal status dependent on nature of token. If token has characteristics of a regulated product (e.g. securities), that token (and any related issuing, arranging, dealing or advising) will also be regulated

Singapore Canada Hong Kong UK Germany

Japan Singapore Thailand Estonia Switzerland

Consumer warning urging investors to be mindful of potential risks. Implied legal status dependent on nature of token (as above)

Malaysia

Intends to introduce regulation Israel Russia

Isle of Man Gibraltar

Banned China South Korea* (reports may reverse)