Finance

Insurers need to be thinking about blockchain technology and virtual currencies like bitcoin and how to approach these areas of emerging risk as they become harder to ignore, according to panelists at the 2018 Professional Liability Underwriting Society (PLUS) Directors & Officers Symposium.

“This is sweeping through for the insurance industry,” said Christopher O’Brien, partner at VENABLE LLP, during a panel discussion at the conference held in New York. “Your clients are going to touch these risks even if they’re not blockchain companies.”


Virtual currency, such as bitcoin, is an unregulated digital form of currency that can be used as a substitute for legally recognized currency and eliminates the so-called “middle-man,” which includes banks and clearing houses.Blockchain is the technology used for verifying and recording virtual currency transactions through a shared database.

Although some believe that when appropriately applied, blockchain is a revolutionary technology, according to O’Brien, there is also the potential for fraud if inappropriately applied.“I’d say this is the second pitch of the first inning,” he said. “We’re at the very beginning of this technology, even though

it’s been around since 2009.”



Bill O’Brien

(Photo by Dennis Trantham)Because it has only recently become more prevalent, and the hazards of blockchain technology and virtual currencies are still being quantified, there is hesitation among insurers about whether these risks are insurable, panelists said.“It’s a tough question,” said panelist Mary McCutcheon, partner at Farella Braun & Martel.

“I work in a lot of areas of insurance, and my clients don’t want to touch this area,” added panelist Christina Terplan, partner at Clyde & Co. US LLP. “They think it’s scary.”Perhaps with good reason, as questions remain involving data security and privacy, O’Brien said.“We’re talking about a shared network,” he stated. “So, is personal information being shared?

How is that being secured? Obviously, the risk of theft in this space is great as well.”Indeed, data usage is an issue, as the data for blockchain is housed in lots of different locations and lasts forever, stated panelist Dara Tarkowski, partner at Actuate Law LLC.



Mary McCutcheon“What does that mean when there are laws that require you to erase the data when you’re no longer using it? How does that work with blockchain?” she said, adding that a lack of understanding of the technology as it is still emerging and evolving can come into play with insurer hesitation.

“There’s a concern that if the insurer doesn’t understand this technology, they’re not comfortable as to what bad things can be done with it,” she said.

ICO DebateOther concerns surrounding this technology involve initial coin offerings (ICOs), or public offerings made up of digital tokens, and whether they are considered securities subject to the same rules and regulations as equity market offerings.

During the panel discussion, Tarkowski described an ICO, at its base, as an alternative way to raise capital through the issuance of a token.“As of November or December, we’re starting to see the ramifications of what not doing an ICO properly actually looks like,” she said.

“There has been a flurry of securities litigation that’s been filed directly in relation to several of the coin offerings that have happened. All of the lawsuits center around one primary theory, and that theory is that you violated securities laws because what you’ve done is sold an unregistered security.”



Christina TerplanIn fact, SEC Chairman Jay Clayton in a recent hearing before the Senate Banking Committee emphasized his position that ICOs are securities and subject to the same investor protection rules as equity market offerings, Reuters reported.“If the SEC is calling this a security, I think it’s going to be very hard to get around that,” O’Brien said.Is the Bubble Bursting?

Given the concerns regarding data and privacy risk, coupled with the SEC taking a closer look at ICOs, digital currencies and blockchain technology, insurers have shied away from this space, panelists said.


However, that may not be an option for long, said moderator Kevin LaCroix, executive vice president at RT ProExec.“This is not something you can elect away from,” he said. “So, if your reaction to this is to just put your head in the sand and say, ‘I’m just not going to deal with this,’ I’m here to tell you that’s not an option.

”O’Brien agreed that while seemingly risky, the space isn’t going to be easy to ignore.

“We’re clearly in my view in a bubble – maybe the bubble has burst or maybe we’re in the bursting part of it – but it’s not going away,” he said. “I think what we’re seeing is its going to experience a correction, and then the long-term effects of the technology are that it’s going to grow.

”With this in mind, the question isn’t necessarily whether to insure this emerging risk, but how, panelists agreed.“It becomes a coverage issue,” O’Brien said.

“If you’re writing a D&O (directors and officers) policy for a company, and you didn’t think about ICOs, you didn’t think about risks associated with cryptocurrency and you just rolled over your same policy language, arguably you are in for it, because you don’t have the line that says you’re not.

”LaCroix added as a word of caution to insurers:

“If you say you’re against this, and you’re not going to touch it, you’re all in. You have to put an exclusion on your policy. You can’t just say, ‘We’re not going to do it.'”Gaps in CoverageThat said, exclusions have led to coverage gaps in the space as well, making things even trickier, McCutcheon said.

Many private management liability policies or public policies have exclusions for privacy risks, or professional services exclusions are written into a D&O

policy, she explained
.

Kevin LaCroix“The D&O policy isn’t going to be a solution,” she said. “Other forms are going to have to step in and pick up that slack.”The conversation has been focused on regulatory coverage, she added, as regulatory coverage for public D&O has become broader to include formal and informal investigations and even inquiries.


“For cryptocurrency (virtual currency), [there’s] nothing,'” she said. “So that’s just a real difference.”She said that while there has been talk of policies that integrate the technology risks to include private, technology errors and omissions (E&O) and cyber all in one form, it can be difficult for the policyholder to feel adequately protected with several different policies in place.

“There are situations where maybe there is a professional services exclusion in a D&O policy, so you have a claim that’s not covered because it’s a professional services issue,” she said.

“But you go to your professional services carrier, and they go, ‘Well, you didn’t define professional services properly,’ or there’s an exclusion, so there are gaps in coverage. Obviously, you can’t insure everything, but I would like to see things move toward…trying to find a workable solution.

Right now, we are right in the bubble, so when the bubble is gone, what are things going to look like?

”Future Best PracticesIn the meantime, panelists encouraged insurers to look for insureds that have been around the space longer and have a track record.“I think with all new technology and any type of emerging risk, you want to look at who is backing it and what is the thought process behind it,” O’Brien said, adding that the unregistered ICO space is a little more difficult because there is currently no insurance in that area.

“I think the first one into the space is going to be able to pick their insureds, so that’s a good thing,” he said. “It’s a less competitive marketplace.”He encouraged insurers considering entering the ICO space to take a “venture capital approach.


”“Don’t pick the [insureds] who are the riskiest ones,” he said. “Do not insure the company that wants to build the world’s largest aquarium on the blockchain.

”He said it’s important to understand the technology well enough to know that its application makes sense and to find a management team that has been around for a while.

“There are plenty of companies who aren’t going to fit those parameters. Let somebody else insure them,” he said. “If you pick the winners, you won’t have any losses.

”Tarkowski agreed, adding that insurers should try to identify companies that have “dotted as many I’s and crossed as many T’s as possible.

”“They [should] actually have a compliance policy and procedures and be self-aware enough to say, ‘Even if we are not going to go so far as to register what we need to register, here are the policies and protections we’ve put into effect to protect our investors’ money,'” she said.

“If they’ve done that, or even hired legal counsel to assist them with it, it’s a little bit of a safer bet.

”Despite any risks and gray areas regarding blockchain technology, virtual currency and ICOs, she added that “it isn’t all bad, and it isn’t all scary.

”O’Brien agreed, encouraging insurers to keep an open mind.“This is a technological innovation,” he said. “I encourage you to be skeptical, but don’t be a cynic.”

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• Categories: National NewsTopics: blockchain in insurance, blockhain risk, Directors & Officers, PLUS D&O symposium, Professional Liability Underwriting Society (PLUS), virtual currency

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South Africa's central bank has launched a program that will trial JPMorgan's Quorum blockchain potential in interbank clearing and settlement.According to an official statement dated Feb. 13, the South African Reserve Bank (SARB) revealed it has established a fintech program that will prioritize, among other things, a project dubbed Khokha to explore a proof-of-concept (PoC) using the tech.


The SARB further said in the announcement that it will partner with ConsenSys, the ethereum technology development startup, in developing the PoC. The project will involve replicating the wholesale payment process on Quorum, the enterprise blockchain co-developed by JPMorgan and ethereum startup EthLab.The SARB states:

"The aim of this project is to gain a practical understanding of DLTs through the development of a proof of concept (PoC) in collaboration with the banking industry. The objective of the PoC is to replicate interbank clearing and settlement on a DLT which will allow the SARB and industry to jointly assess the potential benefits and risks of DLTs."

The initiative is the latest effort from South Africa's financial institutions to explore the application of blockchain technology. As reported in February last year, several major banks in South Africa, including the SARB, have already charted a course toward large-scale blockchain implementation.


That said, the SARB stressed that the new effort doesn't mean it is already making the radical move to integrate DLT in the national payment infrastructure. Rather, the PoC is an experiment to understand the impact of using DLT to transact tokenized assets.


Elsewhere in the announcement, the central bank said it will also review a regulatory framework around cryptocurrencies that will primarily focus on issues of anti-money laundering, tax compliance, settlement risks and capital exchange control.

South Africa map image via ShutterstockThe leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies.

Have breaking news or a story tip to send to our journalists? Contact us at [email protected].

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 Laura Shin , FORBES STAFF  

Sure, the wild swings in the price of Bitcoin and other cryptocurrencies dominate the daily news.

But beneath the headlines, the nine blockchain startups on the ForbesFintech 50 list for 2018 are building infrastructure—to support both public cryptocurrency markets and initiatives that could transform how current financial transactions are executed and recorded. Five of the nine are first-timers on the list.

Newcomer Chainalysis, with just $1.6 million in capital invested, already counts the IRS, FBI and Europol as users of its tools, which allow specific crypto transactions to be traced.  Meanwhile, first-time list member Symbiont is working with both incorporation capital Delaware and mutual fund behemoth Vanguard, on blockchain initiatives. 

Notably, founders of three of our picks—The Bitfury Group, Coinbase and Ripple—also earned spots on Forbes' new list of The Richest People In Crytpocurrency.


Jamel Toppin for ForbesValery Vavilov
The Bitfury Group, Amsterdam
Produces both hardware and software for Bitcoin mining and security, as well as a wide range of software to support blockchains in government, supply chains and insurance.
Bona fides: Working with the Georgian government to put land titles on the blockchain
Cofounder & CEO: Latvian educated computer scientist Valery Vavilov, 38, on Forbes' list of the Richest People in Cryptocurrency
 
Funding: $90 million from Credit China FinTech Holdings, DRW Venture Capital, iTech Capital, Georgian Co-Investment Fund, Blockchain Capital, Binary Financial and Bill Tai
Threat to: Traditional government technology suppliers
--
Blockchain, London
 World’s most popular cryptocurrency wallet, enabling its users to manage their own private keys for Bitcoin, Bitcoin Cash and Ether. Expansion to U.S. now allows crypto trading in 22 states, including California.
Bona fides: More than 23 million Blockchain wallets created
Cofounders: CEO Peter Smith, Nicolas Cary and Ben Reeves
Funding: $70 million from Lakestar, Richard Branson, Alphabet’s GV, Lightspeed Venture Partners and others
Threat to: Coinbase and Xapo
--
Chain, San Francisco
Offers blockchain technology for financial institutions, as well as ledger balance software for fintech and ecommerce companies
Bona fides: Building blockchain initiatives with Nasdaq and Citigroup
Founders: CEO Adam Ludwin, 36; CPO Devon Gundry, 36; and CTO Ryan Smith, 31
Funding: $43.7 million from RRE Ventures, Khosla Ventures, Citi Ventures, Nasdaq, Visa, Fiserv, Orange Digital Ventures, Digital Currency Group, Blockchain Capital, Pantera Capital, 500 Startups, Thrive Capital and others
Threat to: Inefficient legacy record keeping in finance
--
Chainalysis, New York City
Its tools allow institutions and law enforcement to trace specific transactions on the blockchain.
Bona fides: Customers include the Internal Revenue Service, Federal Bureau of Investigations, Drug Enforcement Administration and Europol
Founders: CEO Michael Gronager, 47; CTO Jan Moller, 46; CRO Jonathan Levin, 27
Funding: $1.6 million from Point Nine Capital, Digital Currency Group, FundersClub, Techstars, Converge Venture Partners
Threat to: Criminals using cryptocurrency
--
Coinbase, San Francisco
Easiest, most user-friendly onramp to the cryptocurrency world, offering digital currency wallets with more than 10 million users; trading in Bitcoin, Bitcoin Cash, Ethereum and Litecoin on GDAX exchange; and merchant tools.
Bona fides: Reportedly passed $1 billion in revenue in 2017
Cofounder & CEO: Brian Armstrong, 35, on Forbes list of the Richest People In Cryptocurrency
Funding: $217 million from IVP, Greylock Partners, Draper Associates, Andreessen Horowitz, the New York Stock Exchange, Draper Fisher Jurvetson and others Latest official valuation: $1.6 billion, but surely more
Threat to: Other crypto exchanges, fiat currencies
--
Ripple, San Francisco
Employs blockchain technology for cross-border payments. Transactions can be done with the XRP token, which has had a wild speculative ride, but isn’t necessary to use the Ripple network. (No banks have fully committed to using XRP.)
Bona fides: Has 100 plus banking customers including Santander, UBS and American Express,
Cofounder and executive chairman: Chris Larsen, 57, cofounder of Prosper and Eloan and the richest person in cryptocurrency
Funding: $93.6 million from SBI Investment, Santander InnoVentures, Seagate Technology, CME Ventures, Standard Chartered Bank, Andreessen Horowitz, Lightspeed Venture Partners, Digital Currency Group, Blockchain Capital, Accenture and others
Threat to: Correspondent banks and the SWIFT payment-settlement system
--
Shapeshift, Zug, Switzerland
Exchange allows users to trades between 70 cryptocurrencies, without establishing an account or wallet. To maximize privacy, it does not link to bank accounts or take fiat currencies, though it says a fifth of customers are from U.S. Charges no fees and makes money on the spread.
Bona fides: In an unusual proof of concept, when Shapeshift was hacked by a malicious employee, no crypto was lost, since it does not hold customer funds.
Founder: Erik Voorhees, 33, an American and early Bitcoin advocate who also founded Satoshi Dice.
Funding: $12.2 million from Earlybird Venture Capital, Digital Currency Group, Lakestar, Access Venture Partners, Pantera Capital, Blockchain Capital, FundersClub
Threat to: More traditional crypto-exchanges
--
Symbiont, New York City
Provides blockchain technology platform to the capital markets.
Bona fides: Working with incorporation capital Delaware on initiative that will enable distributed ledgers (i.e. blockchains) to be used to track share issuance and ownership. Teaming with Vanguard Group on effort to use blockchain to share index data.
Cofounders: CEO Mark Smith, 48, CTO Adam Krellenstein, 29 and Evan Wagner, 27
Funding: $15.4 million from Celeridem Capital Management, Medici Ventures, Fenbushi Capital, SenaHill Partners and others
Threat to: Broadridge and custody banks like BNY Mellon and State Street
--
Xapo, Palo Alto, CA
Provides secure offline storage for investors and family offices who want to hold Bitcoin as a form of digital gold (as opposed to actively trading it). Also offers Bitcoin wallets for consumers, mainly in developing world.
Bona fides: Secures Bitcoin underlying the Bitcoin Investment Trust
Cofounder & CEO: Wences Casares, 43, who founded the first online brokerage firm in Latin America
Funding: $41 million from Benchmark, Greylock Partners, Ribbit Capital, Index Ventures, Fortress, Emergence Capital Partners and others
Threat to: Other crypto storage solutions.
Read more:
Full list of the Fintech 50 2018
Forbes Fintech 50 2018:  Click below:

https://www.forbes.com/sites/laurashin/2018/02/13/forbes-fintech-50-2018-the-future-of-blockchain-an...

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• Kay Swinburne MEP: Britain must "embrace" blockchain post-Brexit to help the City "stay relevant."
• Blockchain, a distributed ledger technology, was first developed to underpin bitcoin but now has potential in everything from mainstream finance to healthcare.
• Swinburne, a senior Tory MEP, calls for the FCA and the Bank of England to embrace the new technology.

LONDON — An influential British MEP believes the UK needs to embrace blockchain technology post-Brexit in order to help the City of London "stay relevant.

"Kay Swinburne MEP told Business Insider: "For me, this whole distributed ledger technology, we have to embrace it."The UK post-Brexit: how does the City of London stay relevant?


The City of London stays relevant by suddenly becoming the proponents of the new technologies and not just patching existing systems to make them work post-Brexit, actually leapfrogging.


"Blockchain, also known as distributed ledger technology, is the name for the next-generation database technology first developed to underpin the digital currency bitcoin.


The technology allows for the creation of a shared database, meaning all parties see the same version.


It uses complex cryptography and group authentication to police the editing of the ledger. The technology has almost endless applications for other industries and processes that involve a trusted middleman or central authority — everything from recording births to trading securities.


Banks and trading businesses are particularly keen to adopt blockchain, as its inbuilt security and trust checks can cut out middlemen in processes like settlement and clearing. This, in turn, cuts down costs. Santander estimated in a 2015 report that the technology could save banks as much as $20 billion.





Kay Swinburne MEP. European Parliament"We have a unique opportunity to actually make our markets more efficient using the new platforms," Conservative MEP Swinburne told BI.


She compared it the potential of distributed ledger technology in the UK to the "Big Bang" of the 1980s, when a wave of financial deregulation led to an explosion of activity in the City.


"I am not a natural risk taker but I genuinely think this is the UK’s opportunity, as it did with the Big Bang moment in the 1980s, this is it’s moment to leapfrog."Swinburne is one of the UK's most senior MEPs and has been called the "architect of Mifid II" for her central role in drafting the European financial regulation, which came into force in January.


A former banker, she is the most senior British legislator on the EU's influential Economic and Monetary Committee.


"I want to see not just the FCA, I want to see the Bank of England, embrace [distributed ledger technology]," Swinburne said. "I want them to be the first central bank to open up and say, maybe the monetary policy of the future doesn’t involve issuing notes all the time, maybe it involves other alternative payment systems.


"The FCA is developing several proof of concepts involving blockchain technology and Bank of England Governor Mark Carney has said the technology has the potential to "transform" payments, clearing, and settlement.


Swinburne said: "We’ve got proof of concept of DLT in so many areas. It now needs to be scaled up. We’ve got to take some risks.


We have the opportunity to really make a difference in a way that I don’t think Europe post-Brexit is going to be able to do."We need to start opening up our minds as to how we leapfrog. The conservative status quo is now too risky with Brexit. We need to leapfrog to stay relevant.


The City needs to stay relevant."Swinburne voted to remain in the EU but has since said she would now vote to leave because she is concerned about the union becoming "a more centralised system."

SEE ALSO: Mark Carney: Blockchain could 'transform' payments, clearing, and settlement

DON'T MISS: The UK regulator is working on blockchain-based mortgage reporting

NEXT UP: An influential Tory MEP says the government's leaked Brexit forecasts show a 'consensus' is forming around the economic impact

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