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What’s missing from CBA’s blockchain puzzle

by Matthew Smith | 16 Mar 2017


Few companies are forging ahead with the great blockchain experiment as enthusiastically as Commonwealth Bank, despite there being some pieces missing from the puzzle, explains Annabel Spring, CBA’s wealth management group executive.

“We understand the regulatory, legal compliance and digital currency challenges. We know there is still work to be done,” Spring says, to a room of fintech professionals at the recent APAC blockchain conference in Sydney.

Still, these missing pieces haven’t stopped the bank from developing a prototype for settling and exchanging units in managed funds in real time that’s advanced enough to be depicted in a video explainer, something Spring proudly showcases at the conference.

“To get things rolling I’m going to purchase digital currency from Colonial First State on the Colonial First State unit exchange app,” explain the actors on the video.

However, in reality, there’s currently no such thing as a Colonial First State digital currency.

Nor is there such a thing as a universal digital identity, another feature of this prototype that needs to actually work.

“What we’re doing here is we’re experimenting to test the opportunities with the technologies as well as their limitations. We think after a series of experiments as an industry we’ll come up with something that works,” Spring says.

Commonwealth, like many other financial institutions, is doing what it can with the technology it has, while the regulations and operating factors necessary to enable distributed ledger technology to function remain incomplete.

“I do think, as we look through all of these applications [such as the real time managed fund unit exchange] that at the core of them we will need a simplifying common currency, because otherwise we’ll be experimenting and collaborating when the foundation boxes are unclear,” Spring announces confidently.

“We do think at the end of all this a digital currency will be necessary. Who will create it? It’s hard to tell where it will come from,” she adds.

Where a universal digital currency will likely spring up is something that’s discussed in this recent InFinance article

But regulators and monetary authorities globally have been quick to dampen the rising enthusiasm surrounding blockchain technology. 

Still, the CBA and other financial institutions forge ahead with their experiments.

CBA partners with technology firm R3, using its Corda technology to enable the buying and selling of units in managed funds via its mobile app test case, which also matches transactions between individuals creating a secondary market.

The rationale for doing transactions in this way is as strong as ever: settling and exchanging assets on a ledger in real time should mean reducing the capital banks need to hold to cover payments that settle either daily or longer timelines, Spring explains.

Counterparty risk between institutions can be reduced with transparency and settled instantaneously when financial risk assessments are made and optimised, she continues.

“We don’t think our customers want to wait T+2 or T+3 any more… if we could create a registry of unit ownership that’s trusted across organisational and jurisdictional boundaries, we could streamline the process,” Spring elaborates.

But, for now, all of this of course remains an experiment as the direct-to-consumer application still hinges on a few key pieces still missing from the puzzle.



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