The financial services industry is held back by rules imposed after the 2008 crash. We need to move forward. To liberate the financial industry, decentralisation is the way ahead.
One of the unexpected side effects of of social distancing and the lockdown has been the uncovering of a lot of pain points in the business process. “People needed to be in the office to press a button, but they weren’t there,” says Robert Sams, Founder and CEO of London-based blockchain company, Clearmatics. “This highlights the importance of fault-tolerant automations and peer-to-peer business processes.”
This has all brought to light underlying issues in the market, namely that the landscape of over-the-counter derivative trading is stagnating, and massive changes are now in the pipeline. “Since the 2008 financial crisis, regulators have mandated that counterparties post collateral against their trades” says Sams.
“That’s a good thing from the perspective of risk mitigation, but it means that an inherently bilateral market must rely on third parties to custody the collateral, and the way this is done today is highly fragmented and inefficient. The solution is a smart contract system that replaces the third-party fiduciary with code”. Clearmatics will be taking its “Smart Collateral Framework” to market later this year.
Another issue is the importance of collaboration and interoperability. “Block chain protocols need to be based on open standards and open source implementations,” says Sams. “It’s similar to the internet protocols themselves. Historically, the financial industry has thought about technology in terms of centralised services and utilities, but people are becoming increasingly aware that in future the “utilities” will be open protocols underlying decentralised systems.”
Decentralisation has huge benefits. “Most of the world needs to be automated as it increases efficiency and allows you to do new things that look like science fiction,” says Sams. “But automation typically takes place on centralised platforms, which means the owner/operator becomes a monopolist that captures most of the value created by the network. Decentralisation turns that inside-out and puts the network users back in control.”
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This article originally appeared in Business and Industry’s 2020 Fintech Campaign.
Robert Sams, Founder and CEO, Clearmatics