European Financial Transparency Gateway

Advancing Europe with the steem blockchain

Problem-definition.JPG

Background

The European Capital Market is in many respects still fragmented. Improving transparency and access to information has been shown to stimulate financial investment across Europe, something the continent needs.

The EU (Commission+Council+European Parliament) has therefore issued a Transparency Directive (2013/50/EU) which requires companies listed on regulated markets in the EU ("issuers") to publish a regular flow of periodic information (e.g. annual financial reports) and ongoing information (e.g. change in shareholding) to the market (similar to what US companies provide, and investors in the US can access, through the SEC's EDGAR system).

Unlike the US, which only has one SEC, the EU Member States have created national databases, operated by "Officially Appointed Mechanisms" (OAMs; please stay with me!) and "National Competent Authorities" (NCAs; I know how it feels, don't let me down, keep reading!).

Problem statement

Since the implementation of the Transparency Directive, several problems related to the accessibility of information to investors were identified.

  • the Member States "OAMs" are not connected to each other nor to a central database (that could be the EU equivalent of EDGAR). This leads to difficulties for investors to search and compare information or make cross-checks among several Member States.
  • the format of information provided by listed companies is not standardised yet. Some reports are only available as scans of paper files.

To the above, one should add the sensitive topic of data ownership. For reasons of liability related to the accuracy of the information provided to the public, creating a common EU database where the OAMs would upload their respective content is a non-starter. The ownership and responsibility for the data should remain with the national OAMs. No "EUDGAR" can easily be imagined.

Thus unrestricted access to regulated information provided by issuers from across Europe, and the ability to search and compare data across national boundaries forms the fundamental definition of the problem EFTG is trying to solve.

Existing "Proof of Concept"

A few months ago, the DG FISMA of the European Commission has done a Proof of Concept in order to investigate the applicability of the Distributed Ledger Technology (DLT, aka "blockchain") to the above problem. That PoC was done using a minimal private Ethereum blockchain and, lo' and behold, it's even been introduced on Steemit in a short post !

That PoC was successful but would hit against the inherent technical limitations of the Ethereum blockchain in an attempt to scale. To point to just one aspect, only meta-data linking to the actual reports were stored in Ethereum "tokens" while the reports themselves remained in the OAMs databases.

A new start

Moving to "Pilot phase" (which means using real data and involving real OAMs, even if not all 28 of them from the get-go), DIGIT's "Blockchain Competence Centre" has been asked to propose another blockchain solution that would solve the problem stated above. After careful analysis and pondering a number of aspects which are summarised in this slide
selection-criteria.JPG

we have come to the conclusion that the technology which scores higher overall on these points is ... the steem blockchain!

As the EU has an strong commitment to actively support open source software development, we are thereby proposing to the steem and Utopian community a collaboration, to advance together the European project by joining the efforts toward a more transparent "Capital Markets Union". Thus stimulating investment, growth and jobs in Europe.

The User Stories

These user stories were contributed by Michal Piechocki, CEO of BR-AG who contributed to the PoC (and who should help us with better detailing the "business requirements" for the current "Pilot" phase)

Anne is an investor who is looking for opportunities on pan-European capital market.

Peter is an M&A manager who is looking for possible synergy opportunities among the European capital market participants.

Maria is an auditor who is searching for peers necessary in transfer prices analysis.

Since there is no central platform for analysts and investors to obtain that information conveniently, reliably and promptly, and also because financial reporting data is available in different languages, and often in various file formats, and is accessed using different methods, making informed decisions for Anne, Maria and Peter is much harder, or in some cases impossible

European regulators have undertaken several initiatives to help Anne, Peter and Maria tackle these challenges.
existing-upcoming-standards.JPG
In 2005 the European Union has introduced unified accounting and reporting standards called the International Financial Reporting Standards (IFRS).

From 2017 the EU requires capital market participants to start using the Legal Entity Identifier (LEI) as a unique company identification mechanism.

From 2020 all EU listed companies will be required to apply a common European Single Electronic Format which adopts the Inline XBRL standard for digital representation of financial reports.

Building on these standards, the EFTG attempts to build a blockchain-based commonly accessible registry that synchronises national regulatory information automatically.
EFTG-blockchain.JPG

Here are some questions our three characters, Anne, Peter and Maria would like to find an answer to:

Anne: "I would like to invest in European companies that have sustained an average ROE of 12% over the past 5 years"

Peter: "I am looking for a steel producer in east Europe with less than 30% debt-to-equity ratio to merge with a shipbuilding company "

Maria: "I am looking for industry peers with more than 500 million EUR assets and more than 80 million EUR revenue and more than 5 million EUR profit"

The Rationale

The EFTG Pilot project is earmarked by the European Parliament as a "blockchain project" but both the budget and the deadlines are very challenging, especially in an institutional setting. Our plan is to start from the steemd codebase and use mostly the internal team to adapt it into an "eftgd".

The "eftgd" packages would then be distributed with detailed instructions to the limited set of OAMs participating to the pilot. After performing an independent code audit (if they see fit), these OAMs would deploy our eftgd "witnesses" on their infrastructure under their complete control and take care of coding the "adaptors" which will read data from their own existing databases, transform it into the common format and send transactions to an eftgd node of our EFTG network.

We plan to call on the open source community to help us with the UI/UX : the dedicated "condenser" and the user on-boarding and wallet management interfaces allowing Anne, Peter and Maria to answer their questions.

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It was a pleasure talking with you and starting such a meaningful collaboration right away!

On behalf of everyone in Utopian.io we wish to build an amazing cooperation and help you crowdsource and skyrocket the development of this project!

Our community of developers, designers, influencers, content creators, literally all of us, are eager to see your very first task request going live soon!

Nice
A great post from you done well
Thanks for sharing this with us..

A great project indeed, and while this may seem something small at first, its success might bring others to the blockchain as well as reassure the investors that the blockchain and steem in particular are very useful for these types of projects.

I am thinking that in a few years when blockchain technologies will become more popular someone will inquire as to whether EU should adopt it, and they will be amazed to see they already do :)

Just a thought! I do know a very good UI developer in Bucharest, someone I used to work personally with, maybe I can attract him to steem:
https://www.linkedin.com/in/stanciucatalin/
Worked for Deutsche Bank and Raiffeisen.

What is particularly relevant is that it's DG FISMA having a try with blockchain. The very people incharge of imagining how to regulate ICOs in the EU. What better way to learn about the technology than to use it ?

As an American, the concept of policymakers having technical competence in the area they regulate is a strange and wonderful idea. ;)

Imagine my surprise when I explained the concept of the steem "reward pool" and I read on the faces of the FISMA "policy officers" (economists - lawyers) that they understood it and were grasping the power it has ...

I'm really impressed with this.
It's a great opportunity for Utopian and Steem.

Do I understand well that one of the aims of the project would be to put whole documents (in XBRL format) into the blockchain?

What comes next?
A formal design proposal?

Yes, in few phrases:

  • OAMs will be offered the possibility of running nodes (witness) of a modified "eftg" blockchain (slightly modified from steem)
  • OAMs will also have wallets and a web interface (at first, for the pilot, programmatic interfaces later on) to upload whole iXBRL documents into this "eftg" blockchain.

The key differences here with a classic architecture:

  • uploaded data is "owned" by the OAM, securely through its wallet
  • there is a built-in configurable mechanism for assigning value (the internal "eftg token" of this blockchain, similar to STEEM) to the uploaded data
  • all this is transparent to the OAMs and the NCAs and the Commission and ESMA, the European Securities and Markets Agency; this is conducive to trust.

In other words: building Europe is at heart about overcoming mistrust between representatives (at different levels, here the OAMs and NCAs) of different Member States. About overcoming the fear that some are paying more in the "common pot" than the others, and others are "taking more from the common pot" than the rest.

What comes next - yes, a formal design proposal internally. It needs to be validated before it can be made public.

We are barely starting and there are a lot of procedural hurdles to be overcome, this is completely uncharted territory for us.

this is great hope in Europe..

OK, I'm no expert at Steem development but I'd definitely be interested to keep an eye on this project as it goes on.

I don't think the reluctance of some to engage with the EU is warranted to be honest.
Yes there is a lot of bureaucracy and politics involved but in the end this is an opportunity for the EU to recognize the value of the blockchain.
Going for an opensource solution would also ensure transparency.

The licensing on any technology developed for this is also interesting.

An organization like the EU would definitely want a contractual relationship to provide maintenance and support of this blockchain.

Anyway, I'm sure there are many non-technological points to clarify, including legal.

It will be interesting to see how this shapes up!

I would realy like to see the scoring of the blockchains you tested as much as which one you did test. I am assuming you did only look at permissionned-less blockchains.

Can you explain why you did not try permissionned blockchains (like most companies and institutions are trying to do)?

Your assumption is not correct. First we would be using a permissioned and adapted steem network, not the public net.

Second, we looked at "mainstream" corporate blockchains - everybody we know uses either Ethereum or Hyperledger Fabric. For Ethereum, it's not the public main net but private networks, lately built using the PoA protocol.

The conclusion was that Fabric is more a toolkit that requires considerable time and resources to build a solution than an "out of the box" blockchain. And Ethereum, which has been used for a PoC, is not suitable for storing data.

Had there been more time and resources to scour Github for even better blockchains, I'm still not sure I would have continued looking. If you take a look at the slides I presented in this post, you can see that steem has a unique combination of features (not all of them are on the slides here, there are more) that make it a particularly good bet

On a different topic, I like the steemmessenger project, congrats and keep up the good work !

In a PoA settings I would have gone for the smart contract capabilities over just text. But lately I have been thinking that DPoS is well suited for private blockchain.

I am working on comparing blockchains in my PhD so at some point I will have to look at Hyperledger. As you mention deciding which one to look at and what to look is a pain.

Thanks for steemmessenger. I just recently joined the project and have fun programming around steem and doing some cryptography. By the way I like your posts, it is rare to find valuable discussions n blockchains.

Thanks.

"Smart contracts" are just code executing in a trustless environment. But that is irrelevant in a corporate / institutional settting where trusted execution is the default. Even getting the hierarchy to consider replacing trusted execution with its distributed, trustless version is a pain in the neck. So no, "smart contracts" are definitely the least useful feature of blockchains for corporates.

If you want my opinion, Fabric is an over-engineered architecture that responds to two rather contradictory design goals:

  1. implementing functionalities that allows one to mistake it for a blockchain
  2. allowing business to go about their "business as usual" while at the same time claiming that they are "disrupting themselves" and "doing blockchain

Besides, Fabric is not a product but a toolkit: you need a couple millions to get started and "everything is possible" ... because nothing is built-in. In their tutorials "Alice" can happily double-spend and spend money it doesn't have. When asked, they answer: "oh but you can implement that in business rules" (but forget to add: "provided you pay for X more man-days")

Looking at blockchains is a lot more fun when your horizon is a PhD thesis than when you are expected to deliver with a young and little proven technology and 250K€ a project estimated at 8M€ (32 times more) using a classical centralized architecture.

this is the economy of the future!

I agree that the project, through its many aspects, can have a marking impact - use of "distributed ledger" techniques, of the power of DPOS through utopian, etc. It heralds something bigger coming up

The EU bureaucracy might not be a nice environment for such development, and I think there are political reasons for not having already a common database, a common reporting.

Don't get me wrong, the initiative is good and I want to get involved, but I have no good experiences with the EU regulatory forums.

u-huh ... i said it somewhere else and somewhere down here, its a bold plan to get money and investment, but the EU has BAD habits when it comes to regulation and pretending to crowdsource, only to pass law behind closed doors after that. The last thing they crowdsourced, the piracy report was so inconvenient they buried it so deep it took a MEP to invoke freedom of information in order to get it publicized (turns out the whole witchhunt only pays the trolls and lawyers and piracy actually barely dents revenue as people wouldnt bother paying anyway if they couldnt get it for free (in most cases) ... in some cases (gaming or anime) sometimes it even acted as free advertising , boosting sales)

not convenient for the lobby = buried ... and putting this in the face of the enlightened lords of mordor is a coinflip that could very well blow up in your face ... i concurrrrrrrr

1f947.png

"Not convenient for the lobby = buried ... and putting this in the face of the enlightened lords of mordor is a coinflip that could very well blow up in your face ... i concurrrrrrrr"

Indeed, a major challenge. There are vested interests.

if anyone needs proof i linked the article here below already, they just passed the "filter" law ... (in the name of piracy ofcourse) ... after burying said report which proved piracy isnt even worth pursuing because the cost far outweigh what would be gained because people who dont buy in over 90% of cases wouldnt buy it anyway, wether they had the money or not but in most people simply cant afford ... now that law is passed but in european that means every country can decide for themselves what goes on the internet and what does not, what is appropriate and what is not ... despite advice from all people intellectual and activist, watchdog, free speech movement, tech geniuses ... about everyone but the lobby itself (including the notorious Vint C) to NOT do it because its the most Orwellian move in western history. They said okay okay then did it (during footy season, its a repeating pattern) ... all that advice in public well taken, lofty speeches given on freedom of speech and "privacy" (after which the EU attorney general declared that privacy shouldnt be if it was about piracy ... its a REAL witch hunt, meaning in practical terms i guess he was lobbying for police not needing a warrant if you're accused of piracism .. the new black) ...

the extent of collateral damage of a law like that in EUrope (most americans are confused about the use of the word Union in EU, because its nothing like the states) it means since every country can just interpret, so the more conservative might not have anything that offends religious or grandpa's views, you know ... is that it might actually split the internet into geolocation zones ... which is totally the end really

Julia Reda wants to oppose as TPP always does but despite the backing they get from people who know what they're doing and saying (it was born after the way they treated TPB founders legally, i mean gottfrid got put in isolation for i have no idea how long, like they do in guantanamo ... over copyright "claims" before any trial , get it?) but its not about the right to copy, these are all highly educated and tech savvy people, not the dred pirate roberts lol

but they just get ignored and plebs be plebs, pardon my french but they once more proved they are, "theres footy on tv","i dont have time for that" ...

and here we are, so that's why i think the exhilaration here of "being taken seriously" might end with a seriously bitter aftertaste

but i know how it goes , everyone wants to shine on that stage in that 10k suit giving speeches on how it should be done and get applause

but thats all smoke and mirrors, in reality poverty and crime levels are at a total all time high, i think that is why they concentrate on easy targets

Your balance is below $0.028. @dustsweeper is now disabled for your account until you transfer new funds.

Human reasons. There are very human reasons indeed. Politicians are humans. 90% of the people (probably including yourself) would do the same when in similar circumstances.

Adam Smith actually says this in Wealth of nations, v. 2. He trusts people, but trusts circumstances and systems more. More than people.

It's amazingly

What a wonderful content, what a wonderful mind behind all of that.
It seems that steemit is full of good project and you @sorin.cristescu are one of that mind in my opinion.

This is an amazing project!! And it is very good that EU takes into account new technologies like steem to solve these problems!

It's an opportunity

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