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Welcome to EQUITY ISSUES, a short note on a relevant issue in the private equity and venture capital industry.

If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.  

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Claire Cummings

020 7585 1406

claire.cummings@cummingslaw.com
www.cummingslaw.com


 

EQUITY ISSUES

FRC Lab report on the use of blockchain in corporate reporting


On 19 June 2018, the FRC's Financial Reporting Lab published a deep-dive report, "Blockchain and the future of corporate reporting: How does it measure up?".  The report is the second in a series of technology deep-dives that form part of the Lab’s wider project on Digital Future.

The report considers how current developments and use-cases of blockchain technology might impact corporate reporting processes in the future.  It concludes that, whilst cost, complexity and lack of standardisation of blockchains might be inhibiting factors, the growing use of blockchain means that those involved in corporate reporting processes need to consider its potential disruptive impact.
 
In the report, the Lab use their digital reporting framework to explore how different technologies might impact the production, distribution and consumption of corporate reporting.  Specifically, the following potential use-cases for blockchain are considered:
  1. Production.  In the production of corporate reporting: how transactions processed on a blockchain may help to improve accounting records.  The two areas of consolidation of group information, and data exchange within consortium or small industry association transactions, might benefit from blockchain's potential for error and tamper-free records and high level of trust in the chain.

  2. Distribution. In the distribution of corporate reporting: how a blockchain based European corporate reporting platform (European Financial Transparency Gateway) may help to open up access to corporate reporting.  Blockchain technology could enable greater accessibility for users to corporate regulatory filings across Europe notwithstanding legal, regulatory and technical differences.

  3. Consumption. In the consumption of corporate reporting: how blockchain might help to rethink the way that reporting content is defined.  Blockchain could remove the boundaries associated with current reporting (such as the physical boundaries of an annual report). It could also ease reporting across an industry, which currently requires the aggregation of participant data by one participant.

The report recommends actions for various groups who have an interest in this area including:
  1. Actions for standard setters and professional bodies - Regulators, standard-setters and professional bodies are encouraged to monitor blockchain developments and consider how they may impact corporate reporting.  The report recommends the creation of a forum where all those involved in corporate reporting can share and learn.

  2. Actions for preparers and users of corporate reporting - Preparers and users should focus on gaining a greater level of understanding and consider experimentation and cautious innovation when costs and benefits are balanced.

The report notes that blockchain is immature and must be nurtured if its potential for corporate reporting is to be realised. While the report discusses specific use cases, it also presents basic action to advance blockchain technology in corporate reporting to be taken by each of the regulatory community, the technology community and the preparers and users of corporate reporting.

Preparers and users should focus on gaining a greater understanding; should consider experimentation and cautious innovation when costs and benefits are balanced. They should be open to sharing views and ideas; should understand the impacts and opportunities of blockchain and how it drives change in business processes; should interact with government regulators and others to ensure concerns, issues and opportunities are fully understood.

However, while experimentation drives innovation, it also limits compatibility. Simply solving an issue with corporate reporting is not enough. Reporting processes and systems are complex and blockchain therefore needs to fit into the overall framework of the demands of preparers and others if it is to be truly useful. Adoption of blockchains would not remove the need to have robust controls and processes over data.

The report is the second deep-dive report, with reports on artificial intelligence and augmented and virtual reality to follow. Once all the relevant technologies have been reviewed, the FRC will compile the key learning points to create a vision for the future of the corporate communication process. 

 

This document is for general guidance only. It does not contain definitive advice.


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Cummings

Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327

Cummings Law
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London Greater London W1K 5DB
United Kingdom

www.cummingslaw.com

14 12 2018

 
 

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