Deloitte Luxembourg has developed a proof of concept to address regulatory transaction reporting in a Distributed Ledger Technology (DLT) environment.

Currently, all counterparties involved in trade transactions are required to insure that the details of any derivative contract—OTC or exchange traded—are reported to a trade repository no later than the working day following the contract, under the European Markets Infrastructure Regulation (EMIR). In this context, financial institutions often face challenges relating to data quality, cost of reporting, timing issues and data reconciliation.

Moreover, new regulations like MiFIR and SFTR, to be enforced in the next two years, will significantly increase the scope and the volume of transactions to be reported by financial institutions to the competent authorities on a daily basis. Deloitte is addressing this challenge through its DLT solution, which supports current and future regulatory challenges when it comes to OTC transaction reporting.

In its DLT proof of concept, Deloitte Luxembourg suggests a brand new and innovative process for transaction reporting. The counterparties of the transaction will seal and report their deal using a smart contract, whose terms include all the aspects needed for the transaction reporting. The regulators will be able to control and monitor the transaction data and their daily updates, which are stored in the distributed ledger. Through smart contracts, transaction reporting becomes more transparent, reliable, fast and immutable.

“Distributed Ledger Technology offers a world of new opportunities when it comes to trade, post trade and related regulatory reporting. Thanks to smart contracts and DLT, the quality and transparency of reported transaction data will increase and the reporting costs will be substantially reduced,” explains Laurent Collet, Partner at Deloitte Luxembourg. “With a DLT solution, the transaction data will be readily available to the trade repositories and regulators in a unified form and there will no longer be any need for time-consuming reconciliation.”

In June 2016, the European Securities and Markets Authority (ESMA) published a Discussion Paper entitled “The Distributed Ledger Technology Applied to Securities Markets”, which noted the potential benefits and risks that the use of DLT could bring when applied to securities markets. Deloitte Luxembourg’s proof of concept will help regulated entities and regulators assess the questions raised in the ESMA Discussion Paper regarding regulatory reporting activities in a DLT environment.

By combining its solid regulatory reporting expertise with advanced technical developments, Deloitte’s role in the process would be to support counter parties as their agent in validating their data and in setting up and monitoring the smart contracts.

In May, the Deloitte network of member firms announced a multi-million investment in its financial services blockchain lab, named The Grid Blockchain Lab. Deloitte Luxembourg’s new proof of concept is one of the first projects developed as part of this initiative.