WASHINGTON (Reuters) - The Illinois Department of Financial and Professional Regulation has joined the blockchain consortium led by startup R3, as financial watchdogs around the world seek to better understand the opportunities and risks of the emerging technology.
The Illinois regulator will collaborate with approximately 80 financial institutions that are members of R3 who are working to develop blockchain-based applications that are secure and scalable enough to run financial industry processes, the regulator and R3 said on Thursday.
While R3’s member base includes the Bank of Canada and the Securities & Futures Commission of Hong Kong, this is the first time a U.S. regulator has joined its fold.
Illinois, with its large Chicago-based exchanges and trading firms, is one of the leading global hubs for derivatives trading.
The Illinois regulator’s secretary Bryan Schneider said blockchain’s “potential to dramatically lower transactional costs, automate manual processes, and reduce opportunities for fraud and risk are truly promising.”
Blockchain, which first emerged as the system underpinning cryptocurrency bitcoin, is a shared record of transactions that is maintained by a network of computers, rather than a centralized authority.
Financial institutions have been ramping up investments in the technology in the hopes that it can help them cut costs and simplify some of their processes, like the clearing and settlement of securities.
As each computer on a blockchain network must agree to changes to the ledger, proponents have argued that it would increase transparency, making it useful for regulators.
Yet questions remain as to whether it can meet the standards needed to run mainstream financial services processes.
This is leading more global regulators to take a closer look. In late 2016 the Monetary Authority of Singapore announced that it was working with R3 to test using blockchain for interbank payments, while the Bank of England is part of the Hyperledger project, a blockchain consortium.
R3 is looking to grow the number of regulators and government entities in its member base, said Charley Cooper, a managing director at R3.
The Illinois regulator’s decision to join R3 is part of a wider state push about the nascent technology. In November, Illinois formed a consortium of state and county agencies, known as the Illinois Blockchain Initiative, to explore use cases.
Speaking at a conference in Washington on Wednesday, Illinois Blockchain Business Liaison Jennifer O’Rourke said the state was working on a series of tests including a system to track university credentials on the blockchain.
Reporting by Anna Irrera; Editing by Phil Berlowitz
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