On June 19, 2018 the Financial Reporting Council’s Financial Reporting Lab (Lab) published a report on current developments in relation to blockchain, and on potential uses and impacts of blockchain on corporate reporting. This report forms part of the Lab’s wider project on the digital future.
The report notes that blockchain (also called a distributed ledger) is a type of shared database which creates a permanent record of transactions. Since it is distributed across a number of participants in a network and is not under the control of a single participant, it is robust. This, combined with the fact that any changes made to the data are clear to all participants, ensures both the data and the network are resilient. As a result, the report comments that blockchain is different from a traditional database because of the way it creates trust and resilience and it looks at whether blockchain could solve some of the existing corporate reporting challenges, which include:
- the cost and complexity of recording and aggregating transactions across multiple entities;
- the difficulty of identifying a single source (for users) of credible, up-to-date/prompt company reporting across multiple companies and jurisdictions; and
- making corporate reporting engaging and flexible in a multi-format and multi-stakeholder environment while maintaining an assurance/regulatory boundary.
The report concludes that while blockchain is not the only possible answer (or even the best), it does have the potential to solve some of the challenges in the stages of corporate reporting as follows:
- Production – blockchain has the potential to improve the efficiency and timeliness of error/tamper-free records across markets, industries and companies, and increase the speed of consolidation within groups, particular where there are multiple participants. However, this depends on whether the issues of cost and interoperability are solved.
- Distribution – the use of blockchain as a single source of credible, usable corporate data across Europe is a real possibility but ultimately its success is dependent upon any solutions being easy to use.
- Consumption – using blockchain to form an unalterable group of communications to meet reporting requirements across different formats and entities has some potential, and could lead to different ways to meet regulatory requirements but the need for wider adoption may reduce the likelihood of its use.
As a result, the report suggests that blockchain merits consideration and experimentation by preparers, regulators and users of corporate reporting and it sets out specific actions for each of these different parties in order to take blockchain forward..
(FRC, Financial Reporting Lab report – blockchain and the future of corporate reporting, 19.06.18)