New paradigms in the finance industry

Transcription

1 New paradigms in the finance industry FINTECH, BLOCKCHAIN AND CRYPTOCURRENCIES

2 150,000 members and 25,000 students worldwide Founded by Royal Charter in 1880 Broad remit Qualification provider Membership body Regulator

3 ICAEW IT Faculty

4 Introductions David Lyford-Smith Technical Manager, IT and the Profession - Digital tax - Blockchain - Audit technology - Editor and blogger, ICAEW Excel Community Formerly Senior Excel Practitioner at BDO

5 Technology and the profession ICAEW approach Learn from the experience of businesses applying technology in practice Understand the technology Understand the practical application for accountants Position the profession for the future - Work and services - Skills and education ICAEW 2018

6 Fintech ICAEW 2018

7 What is fintech all about? Not quite financial services, and not quite a tech company but definitely approaches regulation like a tech company Not just about moving existing services online, but about creating whole new services that are digital native Mixture of new financial services options from established tech giants, and new services from startups ICAEW 2018

8 What accountants should be thinking about How do fintech and regulation interact? Is it a case of progressive regulation, or is it about regulation vs innovation? How can fintech be used for good increasing consumer choice, reaching the unbanked, or offering new services? What ethical quandaries arise from the growth of big data and how can governance help? ICAEW 2018

9 Don t forget your history ICAEW 2018

10 The ABCDs of accounting and technology ICAEW 2018

11 ABCD transformational trends Artificial intelligence Blockchain Cyber risk Data ICAEW 2018

12 AI - from rules to patterns Artificial intelligence Cyber risk Blockchain Data Features of technology Statistical models based on patterns Learning complex patterns from lots of data Consistent application Transforming accountancy Automating less standard tasks Replicating accountants intuition Turbo-charging accountants judgement ICAEW 2018

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14 ICAEW work on artificial intelligence ICAEW 2018

15 Cyber risk beyond traditional internal controls Artificial intelligence Cyber risk Blockchain Data Features of technology External threats Constantly changing risk Poor board understanding Transforming accountancy Focus on crown jewels and business critical data New controls around detection, response and resilience Dynamic, externally-focused approach ICAEW 2018

16 ICAEW work on cyber security ICAEW 2018

17 Data codifying non-accounting data Artificial intelligence Cyber risk Blockchain Data Features of technology Big data Data analytics Transforming accountancy New sources of non-financial data to provide hard evidence for decisions Identify how data supports specific decisions and provides value Check integrity and quality of new sources of data ICAEW 2018

18 ICAEW work on data ICAEW 2018

19 Why blockchain?

20 Keeping free of the tangle If a group of actors want to keep common records, there are a few ways to do it, but they all have issues. Each keeps their own record A master record is kept by a central gatekeeper Records are represented using some kind of token

21 Keeping free of the tangle Each keeps their own record - Costly and time-consuming reconciliations A master record is kept by a central gatekeeper - Must trust and pay a central authority Records are represented using some kind of token - Opens up the possibility of forgery

22 Keeping free of the tangle Blockchain is a fourth solution Everyone has a record, and they re all the same There s no controller There can be no doubt on provenance or accuracy

23 One conceptual model for blockchain Universal Entry Bookkeeping

24 Three key features the 3 Ps Propagation New transactions propagate to all users, making sure that every participant has an identical record There is no master ledger, but instead there are many identical copies

25 Three key features the 3 Ps Permanence Each transaction links to the previous Any attempt to tamper is immediately obvious Provenance and ownership are beyond doubt

26 Three key features the 3 Ps Programmability Many blockchains support smart contracts These allow business logic and automation to be included along with the transactional detail Allows for self-spending money or digital autonomous organisations

27 How does blockchain work?

28 Blockchain in practice

29 Blockchain case studies Bitcoin Blockchain and bitcoin were both created by the unknown person Satoshi Nakamoto Bitcoin is open but pseudonymous all transactions are public but the actors identities are not Bitcoin is highly decentralised it is not controlled by any company or government

30 Blockchain case studies Land registry Several proposals out there, for example in Honduras, Georgia, Dubai, and Sweden Current blockchains are slower and lower capacity than e.g. Visa, but much faster and cheaper than existing land registry and capital markets infrastructure Would require substantial conversion work to properly tokenise land

31 Blockchain case studies Shipping insurance Current shipping insurance often relies on physical contracts being shipped from port to port to be signed Maersk, EY, Guardtime, and Microsoft collaborated on a project to track insurance on the blockchain Distributed structure is particularly important given the large number of different parties involved

32 Blockchain in accounting Accounting for cryptocurrency assets Currently no specific accounting standards or even much official guidance for cryptocurrencies Current rules make it clear that cash & cash equivalents is not an appropriate classification Most commonly seen as an intangible asset, treated similarly to a commodity

33 Blockchain in accounting Auditing a blockchain Several of the larger firms have announced blockchain auditing tools and offer blockchain assurance No official audit guidelines for blockchain are yet available Many existing audit checks are suitable for blockchain transactions e.g. confirming ownership, checking valuations against market data, checking for subsequent events

34 ICAEW 2018