BBVA is Unsure of how to hold cryptocurrency

coinratecap (38)in #cryptocurrency • 6 years ago (edited)

It’s no news that Spanish multinational bank BBVA became the first financial institution to combine public and private blockchains in a live transaction, but in recent times, it seems to have hit something of a quandary.
To be specific, BBVA is unsure of the steps to follow.

In the process of executing what was expected to be the third in a series of blockchain-based corporate loans, the bank had to work around a lack of legal and regulatory clarity over whether it could (or should) hold the cryptocurrency needed to power a transaction on ethereum.

In an effort to identify and store each loan agreement with auditability, BBVA's innovation was supposed to act like a public notary service, combining private Hyperledger technology (used to negotiate the loan) with a public blockchain (in this case ethereum).
However, erring on the side of caution, BBVA thought it wise to go by European Banking Authority (EBA) recommendations rather than use native token of ethereum, ether, which also serves as a kind of fuel to update the ledger. The bank anchored the loans to an ethereum testnet, a blockchain which simulates the live version, but that doesn't move real value.

A lot of people will say it’s not so much of a problem to worry about, but this uncertainty is hindering the hard-won innovation work.
The managing director of corporate and investment banking at BBVA, Alicia Pertusa said that according to the EBA recommendations of 2014, European banks are discouraged from owning, buying or selling cryptocurrencies. She pointed out that the process BBVA used for the loans was exactly the same as it would have been on the live ethereum, the only difference is it would need the regulator's approval before using the real ether.
In as much as the Bank of Spain, who in this case are the regulator, would not go on the record, it's clear regulators understand banks may need or want to have small amounts of crypto, not as an asset or an investment, but to validate transactions.

Regulators do not take the EBA 2014 recommendation as a ban so they don’t see it as a legal binding. Still, the compliance department of a given bank would have to judge whether this particular use of crayptocurrencies is advisable.
Pertusa told CoinDesk:
"We do think that regulators are evolving in the way they look at cryptocurrencies and in this case in particular we have talked with our regulators. They understand very well that the use of gas and ether in this kind of network is very different from the speculation of cryptocurrencies."
Regulatory requirements.

Still, the results are a rare, tangible example of how inconclusive guidance, combined with big-bank jitters about the possibility of plans going wrong, are having an impact on innovation.
In the month of March this year, EBA chief Andrea Enria adviced that instead of regulating the tokens, it will be more effective if banks and other regulated financial institutions were prevented from holding cryptocurrencies.
EBA said in a statement that it had issued several warnings to consumers regarding virtual assets and had discouraged financial institutions from gaining exposures to such assets in view of their high-risk nature. However, as a matter of EU banking law, there is no prohibition on financial institutions gaining direct or indirect exposures to such assets.
None of this lessen in any way the irony that BBVA is doing real corporate loans – €75 million to technology company Indra in April; followed by last month's €325 million to oil and gas company Repsol; and last week €100 million to construction firm ACS – but is uncomfortable holding a few dollars worth of ether because of mixed signals from regulators.

In fact, BBVA's corporate loans platform achieves a number of regulatory goals, such as making the pre-trade negotiation of the loan – which is normally done with a mix of phone calls and messages – a single, transparent and easily audited process. And the lessons learned from the tethered loans will be taken on into BBVA's blockchain syndicated loans project, which will launch in the coming weeks.
Pertusa acknowledged that even though public blockchain notarization is a powerful tool for those who know how to use it, there still needs to be plenty of education elsewhere.
She told CoinDesk:
"We see this as the future of public notaries because at the end of the day it's a public record of an agreement that's been reached privately. But a lot still needs to happen in that direction in terms of regulation, admitting that this public blockchain has the same value as a public notary."

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