Evidence Meeting 7 – Finance & Cryptocurrencies | Insurance
For the full overview, including written evidence submissions, please download the PDF Evidence Meeting 7 Overview here.
Video recording of the Evidence Meeting available below.
- Date, 22nd January 2019
- Time, 5:30pm – 7:00pm
- Location, Boothroyd Room, Portcullis House
- Participants, 75 attendees
The mission of the All-Party Parliamentary Group on Blockchain (APPG Blockchain) is to ensure that industry and society benefit from the full potential of blockchain and other distributed ledger technologies (DLT) making the UK a leader in Blockchain/DLT’s innovation and implementation.
In 2019, the APPG on Blockchain will be concerned with building a roadmap to understand the practical steps for both scaling the upsides and addressing the downsides of Blockchain. APPG on Blockchain will prioritise key use cases to explore and generate pragmatic solutions (policy, regulation, industry practice and infrastructure development) with clearly defined steps for how success can be achieved.
Evidence Meeting 7 explored the potential of Blockchain and DLT on the Cryptocurrency, Finance and Insurance industries.
Cryptocurrencies & Finance:
- Dr Hui Gong, Co-Founder, China UK Blockchain Association (Cryptocurrencies)
- Simon Taylor, Co-Founder and Blockchain Practice Lead, 11: FS (Cryptocurrencies)
- Haoda Li, Head of Global Markets, Huobi Europe, Huobi Global (Cryptocurrencies)
- Victoria Thompson, Head of Innovation Legal, Barclays (Finance)
- Marc Piano, Associate, Fox Williams LLP (Finance)
- Dr Jianhua Shao, Solutions Architect, Alibaba Cloud International
- Areiel Wolanow, Managing Director, Finserv Experts
- Phillip Harrison, Head of Digital Process, Fifth 9
When Satoshi Nakamoto published the foundational paper of Bitcoin, “Bitcoin: A Peer-to-Peer Electronic Cash System” (Nakamoto, 2008) a new cryptocurrency which allowed the internet peer to peer “cash” transactions was created, however, it had imbibed a more powerful technology, Blockchain.
Blockchain is increasingly becoming a solution in the financial and insurance system in the context of the transferring assets and impacting the efficiency in the financial operations.
To ensure that industry and society benefit from the full potential of blockchain the APPG on Blockchain presented evidence on,
- Cryptocurrencies & Finance
5. Questions for Inspiration
Cryptocurrencies & Finance
What is the future of money, payment systems and financial transactions? (Bitcoin, other cryptocurrencies, ICO)?
What does it mean for financial stakeholders? (people, shops, investors, banks)?
How can Blockchain disrupt the foundation of insurance through peer to peer schemes?
Can it allow risk to be shared without an intermediary?
Can Blockchain disrupt the business of claims handling by allowing incidents to be recorded across distributed databases?
Will it reduce the opportunity for fraud?
Section 1, Cryptocurrencies & Finance
Fig 1 – Word Cloud on Cryptocurrencies & Finance Section (Powered by EVA AI – Voicera)
The Cryptocurrencies & Finance section was opened by Dr Hui Gong, Co-founder of the China & UK Blockchain association. Dr Hui pointed out that the 2018 cryptocurrency bubble and next burst, were mainly due to the lack of regulation, regulators loopholes and regulatory differences between regions.
For 2019, from a regulatory point of view, he believes that the policymakers can consider stimulating the circulation of digital currencies, by making a prudent and open environment.
The impact of local regulations in a global technology was also the core argument of Simon Taylor, 11:FS, co-founder.
Simon Taylor provided evidence on the different regulatory responses to the Cryptocurrencies, from China protecting its currency control to Japan looking how to create a formally regulated environment to take the benefits from the cryptocurrencies.
However, Cryptocurrencies are global, confronting a global trade in real time under regulatory systems which rules and regulations are local or national. This creates fundamental friction on the systems.
|“Mainstream media gets lost in the price and misses the prize” (Simon Taylor, 11:FS)|
In the current scenario of the absence of a Global Regulation, Simon considers that the Blockchain industry should lead the foundations of it, taking the example of what the FX industry did with the “FX Code” back in 2010 after the Forex Probe scandal.
According to Simon, Blockchain technology will also have a major impact on,
- Financial Operations. Nowadays, financial assets around the world are moved in a similar way that they were moved 40 or 200 years ago where every corporation have a copy of everything. If an asset can be tokenised,
- Cost of paper processes and IT equipment can be reduced
- Global Finance can be catalysed
- Global Finance will impact directly on,
- Founding, removing human network effects and location effects
- Operations, lowering the cost
- Risk, cutting it through greater transparency on the chain of custody.
Haoda (Lester) Li, Head of Global Markets at Huobi, taking Simon’s argument of the Global characteristic of the Blockchain technology, highlighted that Blockchain would have a similar impact as the Internet had in terms of a global network.
Last year people focused on the price of the Cryptocurrencies but what is hidden behind it is the fundamental principle of transfer of value. It has the potential to create an alternative financial system,
- Providing asset protection to those who live in countries with high inflation or war conflicts.
- Allowing global transfers of value without the need of traditional banks
- Making easier to trace transactions providing better tools to fight money laundering.
|“Blockchain allows the people to transfer Value and Data globally as the Internet did with the information” (Haoda Li, Huobi)|
Education of the regulator is a crucial factor to widespread the use of Blockchain as a tool of value transfer.
Victoria Thompson, Global Head of Legal Innovation at Barclays, agreed with Haoda Li that education is one of the main challenges for widespread adoption of Blockchain on the financial sector.
Educating of the UK workforce and giving them the capacity to understand Blockchain is critical for the future of this new technology.
Besides, she pointed out two more challenges that Blockchain technology has to overcome for full implementation on the financial systems,
- Cost of Integration and Technology Debt. Industries and financial institutions have significant technology data in place, and they will be very cautious in implementing new The open source of the Blockchain technology is an advantage for its implementation.
- Security, Privacy and Transparency of the DLT
She also described the number of projects that Barclays is developing within Blockchain, as processing payments in Supply Chain (Supply Chain Finance), self-sovereign identity solutions to post-trade derivatives processing.
|“We are moving behind the cycle of proof of concept and experiments and actually see real integration into the system” (Victoria Thompson, Barclays)|
Marc Piano, Associate at Fox Williams, brought to the table a piece of breaking news that the MIT Technology Review had just released hours ago (Orcutt, 2019). An Olympics consortium in Japan, led by Mitsubishi has tested a Blockchain payment system where they can handle one million transactions per second with each transaction confirmed in one of two seconds.
If this is confirmed, it will bring Blockchain at the centre of the stage in terms of the public awareness and the need to take action and put world standards in place.
Marc considers that this will be a game changer, just not only regarding the cost of transactions or the speed of them but also in the subindustries that this is going to generate as ancillary services to move money around the world as Haoda Li mentioned.
Once again, Education, at the business level and the individual level, was mentioned as the pivotal point for a broad adoption of Blockchain on the financial sector. In addition, Marc considers that regulation of digital wallets in needed to reduce the risk of money laundering and fraud.
Marc firmly believes that the Central Bank Digital Currencies potentially can be the future of money in the more traditional sense.
Section 2, Insurance
Fig 2 – Word Cloud on Insurance Section (Powered by EVA AI – Voicera)
Areiel Wolanow, Managing Director at Finserv Experts, considers that although disintermediation is one of the main attributes of Blockchain it happened in the insurance industry 30 years ago. The figure of the intermediaries at the time (brokers) was replaced for the aggregators.
Blockchain provides to the Insurance industry with,
- Clear track of the of the provenance of the assets
- Reduce the incidents of fraud
- Create a more efficient market place.
|“The use of distributed platforms can reduce the cost of clearance up to a 90%, keeping just one distributed version of the transaction records” (Areiel Wolanow, Finserv Experts)|
However, Areiel believed that the most significant impact of Blockchain would be in the area of Microinsurance. Blockchain will allow providing insurance to those ones that have never had access to it, due to operational reasons as,
- Cost of Administrative Policy too high for microinsurance
- Get in remote areas, where even nowadays the claims are paid in cash.
Blockchain along with global banking can reach a point where human intervention will be not necessary.
In terms of regulatory guidance, Areiel considers that,
- Blockchain is one of the few areas in which businesses would welcome more regulation rather than less
- And Invite our lawmakers to consider directly sponsoring microinsurance initiatives here in the UK
Dr Jianhua Shao, Solution Architect at Alibaba Cloud, agrees with Areiel that Blockchain will boost the Micro-insurance market.
People, products and location that had never been reached before by a broker will be through the Blockchain technology. Nowadays the reduction on operational costs, risks and the increasing trust with Blockchain This has allowed Chinese mutual insurance to put in the market new products that they were not able to previously.
|“Microinsurance under Blockchain can be considered a “Killer Application”.(Jianhua Shao, Alibaba Cloud )|
But this new market is not only about insurance, but it is also about the ecosystem. Microinsurance and its low barrier to entry (a mobile phone) allow creating the needed ecosystem to turn Microinsurance to reality. Clearly, Blockchain will make the world even more global.
Phillip Harrison, Head of Digital Process at Fifth 9, analysed the insurance industry from a broader perspective. Phillip considers that the insurance industry has three main problems,
- Incentivation to not pay out claims
- Slow payments
- Expensive Products
|“Automation capabilities can help address the challenges of the Insurance Industry” (Phillip Harrison, Fifth 9)|
Insurance under Blockchain technology can help to address these “inefficiencies” of the industry. Taking as use-case the automation industry, using Blockchain and Smart Contracts technology allow insurance companies to offer bundle insurance to dealerships, the customer will be provided access to their insurance account and visibility of any claim information improving the industry efficiency as a result.
Like Simon, Phillip considers that confidence in new technologies is one of the main barriers to overcome, and education is one of the main steps to be taken to provide the people and the market with confidence.
Watch the full evidence meeting below (the session on Insurance begins at 55:50)