Blockchain technology for Algorithmic Regulation And Compliance (BARAC)

BARAC investigates the feasibility of using blockchain technology for automating regulation and compliance producing a proof-of-concept platform and facilitating knowledge transfer by means of a bottom-up cross-disciplinary approach developed together with industry and regulators.

Blockchain Distributed Ledger Technologies (DLT) are of great interest to the financial industry because they have the potential to improve efficiency, augment security, eliminate duplications, simplify compliance and increase settlement speed, transparency and verifiability while preserving privacy and anonymity. These technologies are also of great interest to regulators because they provide very powerful auditing tools which can be used for automatic compliance reporting and algorithmic regulation. These technologies introduce several disruptive innovations in this area giving access to auditable data which are hard to tamper with and include both real time and the entire history; providing new instruments to monitor and quantify reputation of users; generating transparent, yet securely encrypted, environments where rules can be implemented enforced and adapted.

In this project we investigate technical, legal and managerial aspects related to use of DLT in the services industry including the significance of new business models and their effects on industry structure. BARAC aims to: i) demonstrate that blockchain technologies can be used to acquire and record financial activity data and to securely retrieve them for regulation and compliance purposes; ii) implement a case-study proof-of-concept platform for automatic compliance and algorithmic regulation from blockchain data; iii) transfer knowledge to industry and regulators and disseminate results to academic community and the wider public.

This will be achieved by adapting existing DLT systems, such as hyperledger (open source DLT project from Linux Foundation) and Corda (DLT project from R3-CEV for financial applications), to provide access to regulatory and compliance data for regulators and by designing smart contracts that automatically verify and execute regulations using smart contracts. We intend to set up a proof-of-concept platform where the feasibility of using DLT technology for compliance and regulation of financial services can be tested in practice addressing industry-relevant case studies. This platform will be built with a bottom up approach working together with our industry and regulator partners and constructed around their requirements and perspectives.

BARAC addresses several challenges that span across many disciplines; therefore a cross-disciplinary effort is essential and indeed this project has gathered together PI and co-Co-Is from five different Departments including Computer Science, Mathematics, Law, Economics, Management and Finance from four different institutions. Together with academia, the proponents' consortium includes regulators, financial industry and the technology sector.

This project has the potential to radically change the way in which regulation and compliance are performed essentially reverting the present approach. Firms will no longer have the duty to report to regulators but instead regulators will access auditable data directly from the DLT. This will radically reduce the burden on firms increasing efficiency, transparency and eliminating the risk of unintentional breaching of compliance and regulation rules. The impact will not only be felt on the financial services sector but will also ripple across the entire services sector from healthcare to the food industry and education. Indeed all industries and services are regulated and need to comply by reporting information to the relative authorities and government bodies. It will also have impact upon business models and managerial practices.

BARAC has the potential to radically change compliance and regulation thereby improving efficiency, reliability and transparency whilst redefining the UK services industry landscape.
Compliance and regulation in the financial sector are currently costly and inefficient. The banking industry is facing an extremely complex challenge: each bank maintains its own ledger system, with duplication of efforts and lack of transparency. Blockchain, Distributed Ledger Technology (DLT) and smart contracts can solve this challenge providing huge economic benefits to the industry but also generating a transparent and secure platform where regulators can access auditable data which are verified by the community and hard to tamper. By using smart contracts, regulation can be automatized over the DLT, increasing trust in the system and removing strain from both regulators and industry.
The UK is leading the world in the financial industry, services industry and Fintech, leading innovation both in terms of industry activity and regulatory practice. A cross-disciplinary study involving academia, industry and regulators to identify the best way forward in terms of technologies, protocols, standards and laws can have a huge impact on an economic sector that contributes £129bn/year to the UK economy.
BARAC focuses on the financial services sector. However, the entire services sector, beyond finance, will benefit from the outcomes of this project.

The expected impact is to achieve crucial advances in the understanding of how DLT can be used to make regulation more efficient in order to contribute to the prosperity of the UK fostering innovation in finance and services industry.

The impact of this project will be maximized in the following way:
1. Involving our industry partners, regulators and practitioners from the beginning adopting a bottom up approach developing research and technology around real practical needs;
2. Providing open source software;
3. Setting up a proof of concept platform for experimenting ideas and applications accessible to the entire community with online feedback from users;
4. Organizing technology transfer activities to reach out industry and regulators;
5. Fostering a new generation of students knowledgeable of these technologies capable to contribute to industry or regulators and eager to develop their own businesses around blockchain DLTs;
6. Publishing high ranked scientific publications, white papers, policy recommendations and reports to help advancement of research and to provide guidance to industry and regulators;
7. Organizing meetings, conferences and workshops to debate the state of the art and identify forward directions speeding up research and adoption in this area;
8. Coordinating research on blockchain DLTs across disciplines integrating developments in computer science, security, programming and cryptography with advancements in law, business and management;
9. Supporting industry and regulators to set up standards and common protocols for blockchain DLTs.