The Illinois Department of Financial and Professional Regulation has become the first U.S. state-level financial regulatory body to join the R3CEV LLC blockchain consortium.
The consortium represents a number of large banks working together to develop financial technology based on the globally distributed ledger system called the blockchain, which can be used to record and secure financial transactions.
David Rutter, chief executive of R3, said of the Illinois watchdog that it will “play a crucial role in creating a safer, more efficient financial system for all participants.” He commented that blockchain fintech is still in its early stages and thus regulatory attention will have a meaningful impact on the direction that the technology takes.
The R3 consortium currently represents over 80 of the world’s largest financial institutions who joined together with the intent to innovate and develop financial platforms using blockchain technology. Major banks including Barclays, BBVA, JP Morgan, Credit Suisse and UBS joined R3 in 2015 to help develop and test solutions for managing financial transactions with more speed and for less cost.
However, since then the R3 consortium has also seen some controversy with Goldman Sachs Group Inc., Morgan Stanley and others leaving in late 2016.
“As Illinois’ financial regulator, we are committed to embracing the potential that distributed ledger technologies bring to our financial institutions,” said Secretary Bryan Schneider. “Its potential to dramatically lower transactional costs, automate manual processes, and reduce opportunities for fraud and risk are truly promising.”
The primary fintech project of the consortium is R3 Corda, a distributed ledger technology platform designed specifically for the financial industry.
Using blockchain technology, Corda allows financial institutions to secure and manage transactions faster and more cheaply than traditional means. Only those parties involved in a transaction are privy to the data in any given activity, but all members of the consortium maintain and secure the network. The platform also takes into account the need for human-readable legal prose translated directly into smart contracts that can be enforced by the platform itself.
By partnering with the Illinois watchdog, R3 expects to work closely with regulators in designing the framework that will describe the behavior of Corda and the role of regulators. This will include developing a system that protects the privacy of all members while also being open to audits from outside regulators and adherence to applicable laws involving transparency and security.