Challenges for Regulators
Regulation and supervision are evolving with technology.
Regulatory compliance, monitoring and implementation (regtech and suptech), regulatory and supervisory requirements have been architected and built into XDEX. The purpose of this is to enable real-time, automated reporting. XDEX provides for compliance to be automatically monitored by reading the XDEX ledger, which contains much information relevant for supervisory purposes.
As such, it can be used to improve the quality of data available to the supervisor, while reducing the need for firms to actively collect, verify and report data.
Not all digital assets are the same. Cryptocurrency may or may not be a security based solely upon how it was marketed. Convertible virtual currency may or may not be a commodity based upon how it was generated and distributed. Application of the underlying technology to a traditional, real-world asset means the digital corollary must conform to various regulation.
Not only is a cursory understanding of the technology very challenging to many people, understanding the distinctions of how the technology is applied, and then subsequently governed, can be daunting.
How can regulators access the verified records they need to ensure that digital assets and tokenized markets are compliant?
When investigating any regulatory matter related to blockchain, distributed ledger technology, or digital assets, regulators must have a solid path towards researching entities, assets, and transactions to determine compliance.
The lack of standards across digital assets creates a confusing landscape where regulators must become experts in the nuances of various protocols and data architectures.
Chain data and hash values only provide a cursory starting point. Extended records and metadata are still disconnected from the layer one network and token, requiring traditional records holds and reviews.
How can regulators access the data they need to investigate any compliance-related matter?
Reporting doesn’t change simply because the technology changes. Issuers, investors, and intermediaries must still maintain consistency with all regulatory reporting requirements.
How do regulators adapt reporting to accommodate distributed ledger technology and digital assets?
Four Ways XDEX Helps Transform Compliance
1) XDEX enables more efficient methods of sharing information
Data provision, collection and predictive analytics via cloud or other online, on-demand platforms can be connected to a common source of data truth as an interoperable metadata layer. This allows banks, intermediaries, asset managers, law firms, auditors, advisors, exchanges, and FIs to communicate among each other, and also directly with the regulator in real time, thus eliminating the need for lengthy reviews and investigations.
2) XDEX drives effectiveness by closing the gap between intention and interpretation
10XTS is developing data ontology standards to enable risk-theme based (e.g. credit risk, misconduct, cyber, fraud) regulatory interpretations, assessment and reporting at a real-time. Reduce / eliminate the need for post-trade surveillance and transactions monitoring including adoption of machine-readable and machine-executable regulations that can be embedded directly into smart contract code. This enforces regulations at the software and data level.
3) XDEX simplifies data, allows better decision making and enable future cognitive automation
XDEX is an alternative, secondary regulatory data architecture with APIs to enable simplified, real-time reporting and decisions. Cognitive automation enables reading and performing risk and compliance tasks. We can help simplify existing operating models.
4) XDEX enables regulation and compliance processes to evolve differently, proactively, better
XDEX enforces holistic digital compliance including data integration, verification and visualization. It enables integrated, utility-based risk management and reporting covering any codified regulation across both financial and non-financial risks.
How we help Regulators
Understanding the risks associated with a particular digital asset, or even a public distributed network is fundamental to the core of XDEX.
By providing a risk classification model-based approach, we can help regulators understand and track investor and customer risk, ultimately ensuring customer protection.
XDEX embeds the rules and logic for compliance into the digital asset to ensure immutable provability of that asset within the jurisdiction.
Over time, we will create and/or integrate data ontology standards to enable risk-theme based (e.g. credit risk, misconduct, cyber, fraud) regulatory interpretations, assessment and reporting at a real-time.
Reduce / eliminate the need for post-trade surveillance and transactions monitoring including adoption of machine-readable and machine-executable regulations.
XDEX provides regulators with the ability to instantly access the entire chain of transaction and custody, as well as the workflows associated with any 3rd party to assess compliance.
This happens with the click of a button as opposed to the traditional methods of forensic records holds and manual analysis. The chain data and associated metadata are immutably provable, and shows every action at an atomic level across the entire network.
Because the metadata associated with an identity, entity, asset, or transaction is retained and encoded, retrieval of any necessary record is ensured pursuant to any records hold request for investigative or even pre-trial discovery purposes.
Understanding flow of assets and funds across markets is a fundamental requirement for healthy, active markets. Regulators can identify macro trends and specific areas of concern through XDEX analytics across global markets.
The extended metadata architecture of XDEX enables a true window into beneficial ownership due to the nature of the chain of data across institutions and markets. As beneficial ownership becomes more prevalent, regulators can understand complex ownership structures and expose any violations across embedded entity structures.