Some of the world’s biggest financial institutions are embracing the ethereum blockchain to collaborate on improving their compliance procedures. UBS, Barclays and Credit Suisse, among others, are working on the Massive Autonomous Distributed Reconciliation platform, known internally as Madrec.
The industry faces a huge legal change when the Markets in Financial Instruments Directive (MiFID) II comes into force next month and demands that all legal entities have identifiers, known as LEIs. This new legislation aims to protect investors and make financial markets more efficient and transparent. Rather than have each institution make these checks Madrec will provide reconciliation for the industry as a whole.
UBS’s head of data Christophe Tummers outlined the problem,
Traditionally, a firm such as ours quality checks data against multiple sources but we do not have a quality baseline against peers.”
Ethereum Smart Contracts
Madrec aims to solve the problem of ensuring that different institutions are using the same data. The platform has been built in the Microsoft Azure cloud and will use ethereum smart contracts to reconcile data industry-wide. Each institution’s data is encoded using hashing. The hashed data goes to the blockchain and the smart contracts reconcile it against other hashed data in the system. In this way one institution can check the integrity of its data without giving away its ledger to other institutions in the market.
The hope is that financial entities will collaborate to ensure accuracy throughout the system. The head of UBS’s blockchain research, Peter Stephens, said in an interview with Coindesk that the project dealt with, “public reference data, it’s not a competitive differentiator”.
The project is the brainchild of UBS and its Level39 fintech lab in London, which has previously come up with several novel adoptions of blockchain technology.