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Blockchain and Regulatory Disclosure: What Does It All Mean?

Blockchain technology offers financial services companies several opportunities to cut costs and provide real-time services. (Source: DFIN)

Blockchain — often discussed, rarely defined — is nothing less than a game changer when it comes to regulatory disclosures. Its power stems from its disruptive ability to bring efficiencies to traditional, fragmented filing disclosure, among a wide variety of other uses. It can streamline operational processes, for instance, by improving the speed and quality of disclosures.


So what does it mean for companies trying to manage multiple layers of regulatory disclosures?

Let’s dive in.

What’s with all the hype?

There’s a lot of hype around blockchain, no question about it.

Hype and uncertainty, it should be noted, are often connected to cryptocurrencies such as bitcoin, perhaps the best-known — but far from only — use of blockchain technology.


Regulators are paying very close attention to blockchain technology. On June 4, 2018, the SEC named Valerie A. Szczepanik as associate director of the Division of Corporation Finance and senior adviser for Digital Assets and Innovation. In her newly created advisory position, Ms. Szczepanik “will coordinate efforts across all SEC Divisions and Offices regarding the application of U.S. securities laws to emerging digital asset technologies and innovations.”

Explaining blockchain

So, what exactly is blockchain? And what are its uses beyond cryptocurrency?

Blockchain works as a huge, decentralized ledger of transactions. The ledger is verified and shared by a global network of computers, meaning that a transaction can only be recorded by a consensus among a majority of the participants in that network. Each event within blockchain occurs when parties agree to e-sign a transaction. And once recorded, the transaction can never be erased. It is immutable.

In short, blockchain is a very fast and tamper-proof way for parties to trade with each other without the need for a central authority.

Blockchain in action

Blockchain technology offers financial services companies several opportunities to cut costs and provide real-time services. Overhauling existing infrastructures within these firms can speed up settlements by allowing consumers and suppliers to connect directly via online networks, eliminating the need for “middlemen” intermediaries in ways that could save billions of dollars for end consumers and companies. As well, the secure distributed ledger could be used to store validated “know your client” data.

Blockchain and disclosure

It’s clear, then, that blockchain can have many applications within compliance, particularly as companies try to keep pace with a dynamic regulatory environment that demands more — and more structured — data disclosures to regulators.

Public companies these days have a vast, and often growing, scope of regulatory disclosure requirements,” says Eric Johnson, DFIN’s president of Global Investment Markets. “Yet their internal processes to handle those requirements are often based on legacy systems that strain to keep up. Analog solutions won’t work in today’s digital world. A 10b5-1 filing, for example, is often cumbersome and paper-based. When done on blockchain, though, filings from such trades are streamlined. Blockchain has the potential to change almost everything in terms of regulatory disclosure.

Blockchain’s evolution

It’s important to keep in mind that blockchain and its various uses are all still evolving.

That said, tremendous opportunities are found in the fluidity and promise of blockchain’s evolution. That’s one of the reasons why DFIN recently announced our partnership with LedgerDomain — namely, to work together to deliver the security and power of blockchain to our clients.