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DTCC Releases Guidelines For Operating Private Enterprise Blockchains In Finance

Industry rules and standards for running a blockchain are still somewhat unclear with various entities approaching the technology in different ways. The Depository Trust & Clearing Corporation (DTCC) collaborated with services behemoth Accenture to write a clearly defined set of guidelines, in the form of a whitepaper on the topic of governance for permissioned blockchains, as it relates to enterprise finance solutions.

Multiple years ago, DTCC took a dive down the blockchain rabbit hole, initiating its investigation into how the technology made famous for underpinning bitcoin could be applied to the financial world, Rob Palatnick, chief technology architect for DTCC explained to me in an interview. “In the last year or so, we’ve evolved a framework for governance,” he said.

“As we started putting the different pieces together of bringing what it takes to bring a distributed ledger network to production with the industry in support of some set of financial transactions, we’ve realized that governance is a critical issue,” Palatnick explained. “We actually built out a framework with Accenture on the different aspects and components that really build in that word governance,” he said.

Essentially, blockchains operate via a set of rules, with numerous parties involved in the process. Governance includes the processes and parameters for modifying or altering those blockchains in alignment with the concerns of the parties running the network. In many instances, the blockchain industry uses the term “governance” as “a catch-all phrase,” Palatnick said. “We tried to put a lot of substance into it and say ‘these are the different aspects of governance that need to be considered’ and ‘this is what an overall framework for how you would put together such a capability would be,'” he explained.

Over the past year, many enterprise giants have taken steps toward employing blockchain for various use cases. One example includes Walmart using blockchain to bring clarity to its supply chain. In finance, JPMorgan Chase is looking to use blockchain in its development of JPM Coin, a digital asset pegged to the U.S. dollar. Facebook is another example, using blockchain to underpin its Libra financial asset.

A significant number of securities transactions occur on a daily basis in the financial industry, with DTCC in charge of the records surrounding many of those transactions, Forbes explained in its April 2019 Blockchain 50 story. Record keeping processes have kept up with the times, going from “paper” to digital methods. Recently, DTCC has taken steps to add blockchain to the equation, Forbes explained.

“Records for about 50,000 accounts in DTCC’s Trade Information Warehouse, where information on $10 trillion worth of credit derivatives is stored, will move to a customized digital ledger called AxCore,” Forbes detailed. AxCore, “an ethereum-based blockchain,” is “a proprietary blockchain created by Goldman Sachs and JPMorgan-backed Axoni,” Forbes explained in a separate article.

September 2019 marks the release for DTCC and Accenture’s whitepaper labeled “Governing DLT Networks,” according to the whitepaper itself.

(The whitepaper refers to “distributed ledger technology (DLT) networks,” but Palatnick confirmed to me that the technology referred to simply can be classified as blockchain.)

Palatnick explained,

“Instead of just using governance as a word, this really goes into depth on what that word governance means, what the framework and components of the word governance are, as applied to any community or network of enterprises that want to work together but also want to have a model for making sure that everyone agrees on the right way forward – that when something goes wrong, there’s some model and methodology to address what goes wrong, that as circumstances in the world evolve, that somebody is looking over the shop and making sure that the shop and the ecosystem modernize along or change along with the rest of the world.”

After various endeavors in blockchain, “We realized that, once you get this community together to solve a business problem, there needs to be a way to address” several questions, such as “what should the standards be, how should you onboard members, how do you bring up nodes or bring down nodes, how do you oversee the whole network when something goes wrong,” Palatnick explained. “In contrast to the public networks, the whole purpose of having these enterprise-built networks is that there is somebody making sure they adhere to regulation, and there is somebody overseeing the network.”

Palatnick noted DTCC will be using the guidelines detailed in the whitepaper, and sees it as a conversational piece, open to “comments and discussion” from the “public” on the road to clarifying the term “governance.”

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