ANZ – Green Field Project

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 Table of Contents
1. Introduction ............................................................................................................... 4
a. Brief Profile of Sponsor Unit .................................................................................. 5
b. Business Reasons for Proposal ............................................................................ 6
2. Digital Business Proposal ......................................................................................... 7
a. Problem Description .............................................................................................. 7
b. Geographic Areas Targeted .................................................................................. 9
c. Beneficiaries – Direct and Indirect ......................................................................... 9
i. Fraud Reduction............................................................................................... 10
ii. Know your Customer (KYC) ............................................................................. 10
iii. Smart Contracts ............................................................................................... 11
iv. Payments ......................................................................................................... 11
v. Trading Platforms ............................................................................................. 11
vi. Impact on Managers ........................................................................................ 12
d. Overall Software Acquisition or Development Approach or Methodology............ 12
i. A Brief Introduction to Blockchain Technology ................................................. 13
e. Product Scope: A Conceptual or Logical Framework – e-payment System ........ 17
i. Cost Reductions and Improved Efficiency: ....................................................... 20
ii. Effectively competing with Fintech startups: .................................................... 21
iii. Potential for developing new business models: ............................................... 21
f. Case Project Work Scope: The Development & Implementation Work Breakdown
21
i. Block chain in ANZ Bank and Application of Block Chain ................................ 21
ii. Development & Implementation .......................................................................... 23
vii. Challenges .................................................................................................... 24
3. Governance & Risk Management Schedule ........................................................... 25
a. Project Governance, Standards and Compliance Requirements ........................ 25
i. Greater Transparency of Ownership ................................................................ 25
ii. Improvements in Liquidity ................................................................................ 26
iii. Impact on Institutional Investors and Activists .................................................. 27
iv. Voting in Corporate Elections ........................................................................... 28
 v. Real-Time Accounting ...................................................................................... 29
vi. Smart Contracts ............................................................................................... 29
viii. Governance of Blockchains .......................................................................... 30
vii. Risk Management Plan .................................................................................... 32
i. Strategic risk .................................................................................................... 32
ii. Business continuity risk: ................................................................................... 32
iii. Reputational risk .............................................................................................. 33
iv. Information security risk: .................................................................................. 33
v. Regulatory risk ................................................................................................. 33
vi. Operational and IT risks: .................................................................................. 34
vii. Contractual risk: ............................................................................................ 34
4. References ............................................................................................................. 36
5. Appendix ................................................................................................................. 39
 1. Introduction

The key purpose of this project report is to develop a complete digital business strategy

plan for the ANZ Bank to enhance competitive advantage. The project proposes the

Blockchain Technology to the bank in order improve the business operations and

processes as per the advanced technology. For this purpose, the global operations and

international business environment in the banking and financial sector have been

evaluated related to the block chain, cryptocurrency and fintech technologies that can

influence the ANZ’s core banking and financial service businesses and enhance global

competitiveness.

The report structure includes the brief profile of sponsor unit, the business reasons of

the proposal and the complete digital business proposal. Along with this, all the project

management concepts have been applied in order to manage the new digital strategy

development and implementation activities. The problem description has been stated,

the geographic areas of the new business unit have been stated, the beneficiaries of the

new digital unit have been discussed including direct and indirect ones. The project has

also incorporated an overall software acquisition approach to implement block chain

within ANZ Bank.

The proposal has also included the product scope addressing the complete conceptual

framework of Block chain technology. After the software acquisition the methods of

implementation and stages have been explained. The development and implementation

schedule have included. In the proposal, the governance and risk management

schedule have also incorporated in the form of project governance, standards and
compliance requirements and risk management plan has been included. In the end of

the proposal, a summary has been included that summarizes the findings of the report.

a. Brief Profile of Sponsor Unit

Recently, ANZ has launched a lab of innovation in order to promote innovation within

the banking processes and enhance overall financial technology that is also known as

“fintech” ecosystem. This lab also called as ANZ BlueSpace for the promotion of

creative thinking and designs. Along with this innovation lab, ANZ Bank also introduced

disruptive technologies to expand the business opportunities and provide improved

products and services to customers. The financial technology “fintech” of ANZ operates

in three core areas that include the following (TechnologySystems, 2018):

 The business lab promotes development in the form of unique innovations that

further strengthen the competitive position of ANZ in the banking industry.

 The company also aims to improve technological advancements through

partnership with external parties to integrate Internet of Things, Cyber Security

and Block Chain as well.

 Invest in the portfolios venture to enhance the strategic interest of ANZ Bank.

Therefore, the proposed unit to ANZ is the digital unit that will be based on the business

operations of blockchain technology. This is because, immense attention has been

given to blockchain technology as it contributes in organizational growth and

development. It is known for Blockchain technology that it eliminates the intermediaries

and also reduce the dependence on external parties. Therefore, the proposed unit will
introduce blockchain technology within ANZ to enhance the overall organizational

banking processes and systems.

b. Business Reasons for Proposal

In today’s technological era, organizations experience that payment service providers

and banks have become an important part of their customer’s life, same as social media

services that have gotten efficient in selling and purchasing of goods. This also enables

them to handle finances, transferring of funds and to be able to work on boundary level.

This need of contrasting the future comprising of payment service providers and banks

has gone far. They also face complicated decisions that lead them to the path of

achieving their desired outcomes, all this happens in the presence of daily activities and

norms of banks.

For years it has been observed that merchant attaining and card issuing industries meet

the needs of their clients by providing them access of efficient and suitable methods of

payment, allowing the retailers to receive credit and debit cards for sale and other

purposes such as orders related telephone and mail, along with bank facilities.

Changes in industries are also seen to been there, sometimes consisting of zip zap

machines for transactions that are authorized electronically. In many countries, pin and

chip transactions are also used, these got importance in business in the last years of

1990’s, it was also considered a recess activity at first that was regarded an additive

related the business activities. Dematerialization is highly occurring in plastic cards, that

is making the cards dematerialized, hidden and tokenized. Due to this dematerialization,

difference between card payment and ACH is getting blurred.

Better innovation beyond cards is provided by the converging of these two. However,

controlling pressures diminishes the card revenues, they also face threat from other

alternative revenues of payments from controllers of the market around the globe, for

example; proposing of cap by European commission on across border and local credit

and debit exchange in EU, and countries like US and Australia have their caps under

Durbin amendment, in this way, they face potential challenge from alternative digital

payment methods (account to account), this further threatens the revenue of cards

(Accenture, 2018).

The Singularity of crypto currency is getting faster than banks and its controllers can

regulate to blockchain the technology by backing up other cryptocurrencies and bitcoin.

but a recent groundswell of scrutiny has been observed, that is from a variety of

industries that work on distributed balance sheet technology, in business particularly.

Instant interactions (on demand) are required by the millennials that are private, secure

and most importantly they don’t need any third party. Cryptocurrency is considered a

new scheme and system that is trustworthy to the people especially young people who

prefer to perform reliable, secure, and effective and decentralization transaction

settlements (Spencer, 2017).

2. Digital Business Proposal

a. Problem Description

Firstly, in the context that ANZ Bank is developing a greenfield project within digital

strategy planning, meaning risk issues and time constraints will be faced. Moreover, not

only this project might be a possible business, where vast amount of money is being
invest through a business lab, emerging technology lab and investment in venture

portfolios, but also is surrounded by a ‘nebula of possible actions’ as nowadays, the

revolution of cryptocurrencies is now worldwide.

In parallel with ANZ Bank’s project, block chains and cryptocurrencies are impacting

mainly the financial sector, as per this topic is currently being discussed and analysed

by central banks such as Australia (Lowe, 2017) and Israel (Scherr, 2018) and banks as

UK (Bank of England, 2017) and Australia (Bickers, 2017) with no founded solution yet

to be implemented. Like this, government’s legislations and regulations with regards

establishing a digital currency which is classified as a disruptive technology, has not

been clearly defined, scrutinised and established, contributing to adjacent issues that

are emerging with innovations made. According to News.com.au, it has been found that

cryptocurrency transactions are not traceable and monitored by a third party

(NewComAu,2018).

There are no formal connections between the cryptocurrency and the central banks,

which will decrease the profits of central banks as well as their power due to the fact

that the cryptocurrency is not being managed by explicit regulations and the digital

currency transaction does not need extra fees collected from the third party. Also

entities such as Ecommerce Europe are concerned about laundering of money or

evasion of taxes, plus data confidentiality (Ecommerce Europe, 2017). Moreover, the

process of the transaction cannot be reversed. Conferring that Judmayer established

that, cryptocurrencies are transferred from one address to another address directly with

the private key, which means the transaction just involves one key and one address
(Judmayer et al., n.d.). Thus, if the progress of the transaction goes wrong, there is no

recourse for customers to recall their loss.

Conclusively, something that is worth mentioning is that the case does not mention that

the company has access to any Technology Platform Based Business Strategy, neither

within the company nor between market actors (government, companies, clients,

platform owner). Consequently, there is a lack of creation of value between customers

and ANZ Bank, lack of interaction between customer’s interactions and lack of value

added creation from customers cooperating with business's partners.

b. Geographic Areas Targeted

The proposed business unit of blockchain technology will target only Australian and

New Zealand financial sector. This is because, high risk and cost factors are associated

therefore, the scope of the project has kept limited in order to control the risks factors.

c. Beneficiaries – Direct and Indirect

Most people are not aware by the blockchain technology that operates bitcoin, because

it operated autonomously from a central bank and is digital in its kind. Public chains are

considered as private and public, allowing the sender to send the value in any part of

the world by accessing through a blockchain. Each chain for using data base is stored

in a peer to peer distributed manner. The devices for database storage are linked to the

previous blocks, having a time stamp and are not always linked to a processor and

ordered and block records (Beck et al., 2017).

The editing of blockchain parts that are owned by the users using private keys for

writing the flies is ensured by cryptography. Copy of administered blockchain that is

stored in sync is also ensured by it. As per the report by world economic forum, it is

predicted that ten percent of the GDP will be kept in blockchain technology by 2025. In

the same way, finance industry that we use can also be disrupted by the blockchain

technology (Athanassiou, 2017).

In this regards, the major beneficiaries of the blockchain technology within ANZ Bank

include the customers, employees, shareholders, suppliers and environment as well.

This is because of numerous benefits are associated with the technology, that will

provide direct benefits to the organization. Hence, the key and major direct beneficiary

of this technology is ANZ Company. The organization will get following benefits due to

implementation of blockchain technology:

i. Fraud Reduction

Even we know that the blockchain technology is new, but it can be observed that it is

considered helpful in minimizing the fraud that is happening in the finance markets,

where stock exchange and financial organizations go through monetary loss annually.

Therefore, it is also gaining massive attention. Centralized data bases are being built by

banks to reduce the chances of any cyberattack, but the use of this is still vulnerable,

however, blockchain, due to its individual dealings and timestamp can help in

eliminating these crimes that are taking place in the finance markets.

ii. Know your Customer (KYC)

As per Thomson Reuters Survey, in order to keep up with customer regulation system

and know you customer around 60 million dollars to 500 million dollars is spent by

financial institutions every year. Terrorism and money laundering activities are reduced

by using these regulations because of their customer identification and verification

system. Individual verification of clients is allowed and accessed by blockchain and

other organizations, this also shows the significance of their administrative and

compliance departments (Bitcoin, 2018).

iii. Smart Contracts

Any kind of information including digital and computer code that can be implemented by

entering the keys by the respective parties, is stored by blockchain technology as it

provides its clients with smart contacts along with the execution of transactions related

finance, for this a criterion is set first that allows the products to be delivered through

signaling the invoice (Cryptocurrencies, 2018).

iv. Payments

Payment process is made transformative and efficient using blockchain disruption.

Payment process of banks from lower costs and high security between clients and

organizations is enabled by the blockchain disruption. In the modern era, many

arbitrators are seen in the system of processing of payment, however, the need of these

is also disrupted by using blockchain technology (Ecommerce, 2018).

v. Trading Platforms
Changes that are occurred in trading platforms that are relied on block chain technology

can easily be contemplated, it also reduces the chances of fraud and operational errors.

Securities exchange of Australia and NASDAQ are looking for solutions that are related

blockchain for improving the efficiency and reducing costs (Financial Review, 2018).

vi. Impact on Managers

The trading of company’s blockchain shares reduces the probability of incentives of

management. Stock compensation grant the incentives to the corporate managers. The

ability of managers to get profit from trade is constrained by the internal trading

regulations. Furthermore, insider trading ensures a de facto compensation for managers

trading within their legal limits, by allowing the managers to get profit with the creation of

their news (Andreessen, 2014).

Verrecchia, Baiman (1996), provide explanation following the Manne’s (1966) theories,

for legal or illegal insider training, aligning the shareholders and managers interest by

representing an efficient incentive system. Share trading of blockchain observe the

trades of managers. The receiving of equity by managers keep the investors interested

as the managers incentives are changed by transactions along with signaling the firm’s

private information. Managers scrutiny is exposed by trading transparency causing them

not to trade more, in this way managers’ profit would be affected resulting in the firms to

pay them. However, managers would likely to create useful information from declined

incentives for exploiting through insider trading and also affecting their links with the

shareholders.

d. Overall Software Acquisition or Development Approach or Methodology

The hype that has been created by cryptocurrencies, Bitcoin and blockchain cannot be

missed, they are considered buzz words of their time, blockchain technology has been

there for around 2008. And it technology gained mainstream in the last year. The

acceptance of cryptocurrencies like bitcoin for the payment method is considered a tip,

blockchain technology has gained much more follow ups in the current year. Its

advantages are not only limited to the processes related management, fields of

accounting, logistics, and security of data. Big industries have already started relying on

blockchain technology and by considering it a game changer in the global world

because to its power of over throwing banks, along with better and secure accessibility

for its users. These industrial players have already been under the shadow of this latest

technology. The companies already been explained in the above section along with

other companies such as Alibaba, and e commerce companies like Unilever and

Walmart are investing deliberately in the blockchain technology (Pisa and Juden, 2017).

i. A Brief Introduction to Blockchain Technology

A blockchain can be defined as a distributed account book (ledger). That stores all

transactions taking place on blockchain and are kept and recorded in the form of data.

Stored transaction cannot be removed from the blockchain, this causes the chain to

become long after each transaction. Due to this, the history of transactions from the

most older to the recent are available to be verified at any time. Complex cryptography

is responsible for entering the data into this distributed ledger, data cannot be cracked if

you don’t have the key but can easily be uncovered using the key, this distributed

nature of blockchains make them secure. There is a proper network for checking the

ledger, there are multiple exact copies of a ledger. If a node has a different ledger as
compared to its network, it will be notified by the network and that node of ledger gets

the signal of getting detached from its network (Chakrabarti and Chaudhuri, 2017).

Common developments that happen gradually in the financial industries refers to the

financial innovation. Instruments, technologies, current markets, and institutions are

included in this. Financial innovation has a distant area that has transformation

technology as its area of interest, this is known as fintech, fintech refers the financial

technology in short. for instance, Zopa is a P2P loaning base that enables its people to

get the loans from their respective connected devices. Furthermore, it can be observed

that these innovations related to finance is a same thing, but in actual they are different

institutions and devices that enables the people to use their services of finance. Some

examples of these innovations include, conventional banking services, ATMs and debit

cards (Papadopoulos, 2015).

 Figure 01: Fintech

(Source: Papadopoulos, 2015)

It can be seen that traditional banks been around for ages, banking is being brought to

modern era with the help of fintech, but there are outgrowing threats for banks as well. It

is possible for them to outgrow banks by offering flexibility related the ways for

managing money that banks would not be able to do or will have to redesign their

system from scratch for meeting the expectations of people. The current century has

made people to expect more from banks, but banks are unable to fulfil their level of

expectations (Heilman, Baldimtsi and Goldberg, 2016).

Blockchain technology is also assisting fintech for disturbing the financial services.

Blockchain technology as a medium of value was first used by bitcoin. Bitcoin contains

the future infrastructure of the financial markets. Proper decentralization refers to having

no powerful dictator, governing authority, or humans controlling the network along with

no governance, stores of values on global platforms could be easily send or received by

anyone who has internet connection or any mobile device. Blockchain technology’s

destruction is aware to the banks, this has made banks to devise new strategies for

their operations. As per Albeit, they are not likely to provide centralized or decentralized

distributed ledgers. Blockchain technology, on the other hand is providing means to

acquire networks for its users along with making the process of transactions cheaper,

safer and faster. The financial companies that have no banking policies are more likely

to use blockchain technology that has helped them to grow faster than banks

(Samaniego and Deters, 2016).

 Figure 02: Blockchain Technology

(Source: Samaniego and Deters, 2016)

e. Product Scope: A Conceptual or Logical Framework – e-payment System

The supporters of blockchain technology assert that it can prove to be a highly effective

and easy solution to time-taking, laborious and costly banking processes. Following this

assertion, many banks worldwide are testing this technology for application. Some

banks around the world are quite interested in wanting to develop systems that involve

lesser people than before in transactions and hence are investing substantially in

blockchain startups. On the other hand, most banks who cannot afford to put money

behind new ventures are collaborating with financial technology companies that offer

blockchain services. Many large global banks like Goldman Sachs are conducting in-
depth research on this technology through their own efforts but such studies are majorly

concerned with elaborating technical knowhow and finding practical uses of the

technology (Luther, 2016; Ammous, 2016).

In reality, only a handful of banks have been able to develop their own blockchain

setups without the assistance of fintech partners, however, a few notable international

banks which can afford such huge projects have already started to register their own

blockchains technology systems. There are numerous reasons why banks are

interested in this breakthrough technology but the key motivation is the potential cost

savings that banks can achieve along with increased efficiency levels in day to day

transactions (Luther, 2016; Ammous, 2016).

Similarly, the proposed solution to ANZ is to introduce an “e-payment system”. This is

because, the central banks worldwide are discovering wide range of new payment

systems. Similarly, the e-payment system through the blockchain technology can be

introduced within the bank. The banks have addressed the potential advantages of

blockchain technology for the payment system. However, the experts have argued

regarding the challenges of new payment system due to development of an entire new

infrastructure for the payment system. Several commercial banks are introducing their

own digital currencies in order to meet the competition. For instance, the UBS

Switzerland started “utility settlement coin” to develop a digital currency. Along with this,

due to increasing globalized payments or cross-border payments the competition has

increased (Luther, 2016; Ammous, 2016).

Along with this, e-payment system at ANZ will incorporate the digital cash that is the e-

money rather than cash amount. This electronic payment will be stored in the system

and it would not require any intermediary such as agent or access to the bank account

to complete the payment procedure. This digital currency can be in the form of software

or hardware. The e-money in the form of hardware and software has numerous benefits

that include – the security, no limitations or restriction of time, efficient online

transactions and also enable the user to ensure anonymity (Luther, 2016; Ammous,

2016).

The use of blockchain technology has increased as it will eliminate the intermediaries in

through the e-payment system and will enhance capabilities of ANZ’s payment system

through cost-reduction and savings. This has been illustrated in the following figure:
 Figure 03: e-payment system of blockchain technology

(Source: Financial Times)

Most of the banks are adopting the blockchain technology and mainly the e-payment

system due to followng factors. These factors elaborate major driving forces behind this

move of the banks (Pisa and Juden, 2017):

i. Cost Reductions and Improved Efficiency:

As mentioned earlier, blockchain based e-payment systems can greatly reduce costs for

the banks and as a result improve efficiency. Banks worldwide are faced with increasing
maintenance costs for their archaic operating systems and frequent legal expenditures.

In addition to this, banks have to cope with fluctuating economic conditions. As per a

report by Santander, blockchain technology can help banks save more than $20 billion

annually (Bech et al., 2017).

ii. Effectively competing with Fintech startups:

Many new financial technology startups are equipped with blockchain technology and

are readily providing some banking services like transfer of remittances and money

around the world at lower costs and in lesser time than other banks. The banks are,

therefore, more driven to adopt this technology on their own in order to counter the

competition from such new ventures (Ammous, 2016).

iii. Potential for developing new business models:

Blockchain e-payment system can allow banks and financial institutions to develop new

business models that enable banks to avoid central regulatory bodies and bureaucratic

procedures. Breakthrough financial systems can be developed using this technology

(Luther, 2016; Ammous, 2016).

f. Case Project Work Scope: The Development & Implementation Work

Breakdown

i. Block chain in ANZ Bank and Application of Block Chain

The proposed solution to ANZ Bank is an e-payment system based on digital currency

commonly known as “bitcoin” in the blockchain technology. This will provide ease in

terms of transaction and the physical transactions will be ceased and all the payments
will be stores and shared in the form of information. This payment system has several

advantages (Luther, 2016):

 Convenient mechanism of payments.

 Introduction of digital currencies and an e-payment system will erase the

challenges of currency exchange of national or international rates.

 There will be no geographic barrier in sharing of money.

The introduction of e-payment system will simplify the mutual settlements via internet.

Given the versatility of blockchain, the technology can be used by banks across many

different business divisions. As stated earlier, many banks have begun customizing this

technology and implementing it in their processes with or without the help of financial

technology firms. The blockchain networks can be easily shared with other affiliates

however, the banks first need to ensure effective execution of this technology internally

(Luther, 2016; Ammous, 2016).

To implement blockchain e-payment system without any hiccups, ANZ bank may take

the following two-tiered approach (Athanassiou, 2017):

 Tier 1: Implementation of blockchain e-payment system for day-to-day

internal business dealings, where the banks have direct governance and

access, such as on documentation for loans, information transfer between

internal banking stakeholders or employees etc. Bigger banks that have more

daily transactions and are involved in international dealings can implement it

for inter-country transfers within the bank as well.

  Tier 2: If banks have been able to successfully execute the implementation of

blockchain e-payment system within internal networks, then these banks can

initiate linking up of similar blockchain networks with external parties. This can

also aid in easy sharing of information and data with other organizations,

further adding to the benefits of blockchain.

It must be noted that the above-mentioned implementation approach should ideally be

conducted in an iterative manner. That is, these phases must be worked on in a two-

stepped approach; step two must be carried out after step one has been successfully

completed. Furthermore, it is also advised to use KPIs such as ‘time taken to execute’

and ‘value generated’ for determining the success of each case (Forbes.com, 2018).

Due to its numerous advantages, blockchain is being readily adopted by banks across

the world. After creating ‘proofs of concept’ (POCs) for relevant use cases, many large

international banks have proceeded to checking the technology for fund transfers

across their branches in other cities. On the other hand, smaller banks are collaborating

in maintaining POCs relevant to smart contracts, trade of securities and transfer of

documents. Blockchain will allow banks to create transparency, enhance trust, minimize

costs and counter fraud. This immensely benefits customers, banks and other involved

parties (Mindtree, 2018).

ii. Development & Implementation

The e-payment system at ANZ Bank can be developed through a complete installation

of networks and particular programs. These programs include an entire chain of

blockchain technology and allow the bitcoins for global transactions. As per the
research, programs can be developed on mobile applications and networks for online

payments and dealings. Especially in the case of bitcoin and crupto currencies, bank

can develop an open source computer network and distribute the access to the users.

This would not require any central administrator, supervision or any control. These will

work on the methods of cryptographic to secure the data and information. After the

development of this network system for digital currencies or payment, users can

exchange the transactions through the system with unlimited other users. For this

purpose, private key needs to be developed for the creation of bitcoin address and

ensure the legalities of the transactions. Customers can use the digital signature or

encryption as well for communication. This system implementation ANZ can begin in the

beginning of next year, 2019 (Athanassiou, 2017).

vii. Challenges

This system will be challenged by wide range of barriers as it will be the first time ANZ

will introduce an e-payment system (digital currency) based on blockchain technology.

This shift of system transformation will be a critical step for the bank and users as well.

Though, users are the direct beneficiaries of this system as a new payment instrument

will provide with huge network with more users and participants. The research shows

that the digital currency and payment system is fascinating in many ways. However, the

major challenge will occur in the form of huge cost to manage large numbers of

transactions as compared to current retail payment system. On the other hand, the e-

payment system for the digital currency or e-money has some legal challenges. This is

because, digital currency has no legal value and it is difficult to reclaim as compared to

the conventional modes of currencies. Along with this, the chances of fraudulent
activities are higher. Additionally, in the digital currency e-payment system the

transactions will be made across the nations or borders. For this purpose, ANZ Bank

needs to consider or oblige the regulations, laws and government rules strictly

(Andreessen, 2014; Athanassiou, 2017).

3. Governance & Risk Management Schedule

a. Project Governance, Standards and Compliance Requirements

As stated by Yermack (2017), faster, cheaper trade execution, settlement and costs of

greater transparency of ownerships would be the certain benefits related trading and

delivering corporate securities on blockchains. improved transparency would give profit

opportunities to the shareholder activists, institutional investors and managers.

Improvement in trade technology would also be useful in acquiring the incentives and

liquidating ownership related the groups. Certain side effects related economy might be

there, as the value of separate firms would get more reliable signals because of the

varying incentives for investors in trade. These changes can lead to the different

designing of securities, keeping in view the repressive settlements, and the ability of

blockchains in execution of small contracts independently. consultants and board

members having different skills for dealing with these changes are recruited by firms.

The topics of management incentives would evolve in the light of the altering nature of

company’s security.

i. Greater Transparency of Ownership

When blockchains are used in open form along with free exit and entry. They tend to

create a distributed ledger (archive of transactions), that makes visible the transaction’s
copies to the members of their network. According to a research, the structure of

blockchain related the authentication of property, suggested that this structure

collaborates in verification and auditing function. A company that shares its list on public

blockchain, makes it approachable for all the interested parties and shareholders to

view their ownership’s arrangement at any time along with the consideration of minor

changes if there are any. This arrangement (raiders, managers or activists) does not

always attract all the shareholder, who have this wish of concealing their trades same

as small shareholders have the wish to see them (Pisa and Juden, 2017).

Firms would be supposed to balance the considerations while issuing valuation, along

with the evaluation on their market shares that whether they would be more profitable

on blockchains (permissioned or private), where it is possible to restrict the transactions

to member firms and investors. The archive of transactions in private or permissioned

blockchains would generate complete information about the ownership of each firm,

then it is seen today in stock markets by making it clear to some observers. The impact

on the investors regarding insiders, trade and strategies could be thoughtful, if

distributed ledger of transactions were to be only visible to government and sponsor of

blockchain. due to this, blockchains offer different degrees could compete for attracting

the corporate listings in the market, along with other companies. Who reach different

platforms for appealing various stakeholders according to their ownership transparency

preferences (Bech et al., 2017).

ii. Improvements in Liquidity

As per a survey conducted by Jacobsen, Subrahmanyam and Holden (2013), the ability

that allows the trading of security at significant quantity in short time and at low cost is

termed as liquidity. Their potential to shorten the required time for settling and executing

security trades, and reduction of costs, possible significant improvements in liquidity are

offered by blockchains where they are used as a base for exchanging and sharing

registration. Stock markets introduce them, for streamlining the after effects of trade

clearing and the process of settlements. Many investors and portfolio managers

consider liquidity a critical issue. Demands for stocks along with other advantages on

ownership and investment patterns can be made by improving liquidity.

iii. Impact on Institutional Investors and Activists

Improved liquidity and greater transparency arisen from blockchains would affect

external stakeholders. Edmans conducted a survey in 2014, where the impact on

shareholder activism has been studied through papers, that predicts the involvement of

shareholders in corporate governance either with the increasing of transparency and

liquidity. Raiders and activists consider better transparency costly, that might make

them reluctant in investing in firms that is traded in blockchain industry. Investors use

the strategy of building the share positions for lessening the valuation of assets by not

doing publicity after buying. Investors also make efforts to control their self-identification

timing for surprising business managers. Furthermore, identification of activists

becomes apparent in their investment, that might make the activism of shareholder less

extensive and expensive for blockchain share trading firms. The models in Vila and Kyle

(1991); Fos and Collin- Dufrense (2016), which shows the trade of block holders in the

period of positions of ownership is highly cost effective.

Shareholders activists and institutional investors have a great impact of liquidity upon

them. Major shareholders ensure easier exit and entry along with smooth settlement

and execution of trade in blockchain market. Activists and institutions promote the

easier entry. Fang, Zur and Edmans (2013), make clear the greater liquidity benefits for

the external stakeholders who want to get involved in the management of firm.

According to research, when liquidity is higher, most shares are accumulated by the

activists.

iv. Voting in Corporate Elections

Blockchain technology is also used as a stage in electing procedures, (Boucher, 2016),

voting system of corporate proxy has provided the modern technology with

concessions. The stock exchange of NASDAQ (In February (2016), pilot program for

voting in blockchain was introduced for the stock exchange companies. Furthermore,

this corporate parent working in New York announced that blocks would be recorded

using blockchain technology that would be different from the previous fragment and

labor-intensive process. Study of Yermack (2017) linked the corporate with elections

prevailing issues that includes insufficient distribution of ballots, voter lists and extreme

tabulation of vote. To address the blockchain, voters would be given tokens in

blockchain elections. According to research, shareholders would be motivated by

transparency, accuracy and in blockchain voting, and would participate in voting and

greater frequency related corporate governance. This blockchains transparency, would

create problem related obscurity of voters as most corporations are not confident in

voting (Edmans, Fang and Zur, 2013).

 v. Real-Time Accounting

As per Lazanis (2015), the ordinary business transactions of firm could be posted on

public blockchains, enabling it to happen automatically by using digital currency. As the

currency depends upon blockchain, but tokenization could also make it possible. Time

stamp could record the accounting data routine of the firm, that would prevent it from

ex- post. This would make the company’s ledger noticeable to other customers, lender,

trade creditor, shareholders or any other party. Firm’s transactions could be aggregated

in the form of balance sheet or income statement without being depending on quarterly

monetary agreements made by auditors of the firms. This comprehensive financial

reporting change would be of cost, making information accessible for outside parties.

But would also share two advantages, in terms of increasing shareholders trust in the

company’s information and expensive auditors would no longer be recruited to verify

company’s books and records accuracy.

vi. Smart Contracts

As per Szabo (1994), computerized protocol for executing the conditions of a contract

is known as ‘smart contract’. Its logic is same as of self-propelled coke machine.

Furthermore, this contract is made to assure the party of the promises made by the

other party with certainty. It can also deal with the problems related strategic defaults,

because they can reduce the enforcement and costs of verification. For instance,

lawyers might face problems in their business in the world of self-enforcing contracts.

Blockchain technology is to be applied for executing smart contracts based on simple

and complicated events related their future monetary outcomes, using new platforms
like Ethereum. Various enforcement and legal issues having their potential applications

in governance and corporate finance are raised by small contracts. They include

efficient transfer of security in default event, payment given to the employees for their

services, options exercised mechanically that are based on contingent claims and

securities along with many others.

For reducing the costs of agencies, smart contracts are likely to be a reliable and secure

device in these prevailing settings, commitment of not taking advantages in future are

represented by the firm’s willingness after entering in the contract also protecting a

lender against strategies of fraud like techniques of engaging with the similar security

related the borrowers by debtor. The corporate governance like being influenced by

blockchain stock is not always affected by the small contracts, however, evident long-

term influences related deterring referred as agency costs of debt such as strategic

default and risk of shifting could create impact upon them following the advantageous

effects such as low cost of debt in market and reducing of opposing selection in

financial markets. New need for bank administrators might be reconsidered by the

board of directors, who aim to have a significant bonding with the market ensuring the

creditworthiness of the firm (Sisli Ciamarra, 2012). The contractors of debt might have

few contracts, by diminishing the importance of role of agencies of credits rating.

viii. Governance of Blockchains

The participants involved in blockchains, including the firms that have their lists

displayed on stock registry of blockchain- have concerns related the blockchain’s

governance. Compute software operates a public open blockchain, possibly by the

miners of running the source code. This open source code uses the primary inputs for

all transactions along with limiting the associate contingencies with each contract,

keeping in view the priority and timing for encoding the transactions in blockchains and

dealing with other problems (Yermack, 2017).

Parameters of software’s are like the regulations and rules of stock exchange where

firm show their consent in listing their shares and involving the third parties to trade

them by agreeing on the constraints, limitations and consequences. A novel method

regarding the tracking and trading of financial assets ownership is also offered by the

blockchain technology. It keeps the financial record in a way forward from the time of

introduction of its entry in book keeping. Blockchains are experimented with stock

exchanges for engaging in firm’s trade, voting of shares and lists. This helps the

stockholders to get benefit in fast transferring of ownerships, lowering of costs, trading,

higher transparency and accurate record process (Yermack, 2017).

Blockchain regime could change the corporate governance in different ways, raiders,

activists, institutional investors could get benefit in purchasing lower cost shares and

selling them to markers with higher liquidity, but it would be difficult for them to disguise

their trades, managers are likely to lose the opportunities for increasing their profits on

insider trading focusing on the clear view of their transactions by obtaining stock based

compensation incentives. Opportunities for managers for pledging shares related

derivative transaction or backdating the recompensing awards would be denied by

blockchains. The voting of shareholder would become less cost effective and more

reliable. For reducing the litigation need and costs related financial distress, strategies

like minimum role of audit firms, real time accounting and implementation of smart
contracts might be used by the companies to use blockchains for these. The relative

power of shareholders, managers, regulators, lenders and third parties participating in

the corporate governance domain could be altered by using these changes (Yermack,

2017).

vii. Risk Management Plan

Institutions are risked by the blockchain technologies, and those risks are same as

those that are related to the business processes by introducing variations related the

account (Bech et al., 2017).

i. Strategic risk

Firstly, the need of evaluation by firms to wait for the maturity of technology or wanting

to lead the adoption edge is considered by the firms. But all these options have certain

risks and consequences related strategies of business. Secondly, it is important for the

firms to determine the network they want to link themselves with, keeping in view the

nature of technology. As it would create significant impact on their business with other

entities. Third, limitations could be posed in their products and services that are to be

delivered by them. So, the choice of platform would be of great importance (Edmans,

2014; Bech et al., 2017).

ii. Business continuity risk:

Due to the distributed nature of technology, blockchain technologies become resilient,

however, the business based on blockchains are vulnerable to the operational failures,

cyberattacks and technology. So, a strong business continuity plan must be there for
better governance and avoiding the risks. Furthermore, the duration of business

processes and business continuity are shortening by blockchain for clear recovery time

and immediate response (Edmans, 2014; Bech et al., 2017).

iii. Reputational risk

blockchain technology, unlike fintech is a partner of basic infrastructure, and it needs to

work efficiently following infrastructure’s legacy, and if it fails to do so it will result in

regulatory issues and bad experience of clients (Edmans, 2014; Bech et al., 2017).

iv. Information security risk:

Transaction security is provided by blockchain technology, but it does not give any

account security, cryptographically sealed ledger and distributed database helps to

prevent any corruption in data. However, account take over is still susceptible of the

amount stored in account. Furthermore, blockchain network might face cyber security

risks if it tries to overtake their network (Edmans, 2014; Bech et al., 2017).

v. Regulatory risk

There is uncertainty across the globe currently, that revolves around controlling

requirements of the blockchain applications. Furthermore, controlling risks might be

there that are linked with each case. The framework and type of participants in the

network enable the cross border or domestic transactions, Data protection and privacy

related to the cross-border regulations are also included in this. In the exploration of

issues and trading securities, FINRA’s regulatory guidance is there that enables the

broker dealers to be conscious of the state rules, laws and regulations along with the
 facilitation and maintaining of transactions on DLT network and motorized actions.

Furthermore, the potential of DLT to highlight different aspects of post trade processes,

transparency, market security, operational risks and market efficiency (Edmans, 2014;

Bech et al., 2017).

vi. Operational and IT risks:

there will be a need to update the existing procedures and policies that would reflect the

business process. The technology concerns could consist of scalability, interface with

legacy, speed and their implementations in technology (Edmans, 2014; Bech et al.,

2017).

vii. Contractual risk:

There would be various service-level agreements (SLAs) between the administrator of

the network and participating nodes. There will be a need for SLAs to work with service

providers for monitoring the compliance. This also includes supplier risks as firms may

face third party risks, as technology might be under the control of external traders

(Edmans, 2014; Bech et al., 2017).

In this regard, following are the key components for effective risk management of

blockchain (Edmans, 2014; Bech et al., 2017):

Risk Controls Timelines Responsibility

Information Security risks This risk be controlled through Consistent Project Manager.
effective ecosystem that
continuously check and monitoring.

Operational and IT risks These risks can be overcome Consistent Project team
through checks and validity. members.
Regulatory risks Effective governance, standards Consistent Project Manager
and compliance as well.

Strategic risks Risk metrics and reporting to Monthly Top Management

address the strategic risks. performance
reports.
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 5. Appendix

Key ideas Supporting evidence Relevance of idea to Can your idea be

(to communicate to for your idea? the problem and challenged?
ANZ in your proposal  What kind of client? (relevance  How could the
report) evidence do you defined in assignment idea be
have to support brief, pp. 10-12) challenged or
the idea?  How does your questioned by
 Is the evidence idea respond to report readers?
strong and ANZ’s specific  On what basis
diverse enough problem needs? could the idea be
to convince your (not just the challenged? E.g.
report readers? general does the idea
blockchain lack supporting
topic) evidence? Do
 Be specific (e.g. you need to
benefits to ANZ, consider other
etc.) approaches or
ideas? Have you
made any
assumptions?
 How could you
revise the idea to
make it stronger?
(for this specific
problem)

The proposed The facts and figures The introduction of e- The idea of
solution is e- have been presented payment system and implementation of e-
payment system regarding the use of the digital currency payment system at
that will include blockchain will be useful to ANZ can be
digital currency technology in the sustain market challenged in the form
based on blockchain financial and banking competitive position of vague execution
technology. sector. For this in the banking process, however,
purpose, wide range industry. As the assumptions have
of journal articles technology is rapidly been made. This is
have been reviewed growing, ANZ also because, the ideas
and findings have needs to consider the have been generated
been incorporated. benefits of this from existing research
technological articles and there are
advancements mainly rare numbers of banks
the use of blockchain who have adopted the
technology. It will be e-payment system and
useful to facilitate digital currency. Along
customers with with this, the legal and
 modern payment regulatory issues are
services and system. the major challenges.
As users are the
major stakeholders of
this technological
change and they will
benefit the most.
Along with this, ANZ
will get benefits in the
form of cost-
effectiveness,
developing an
effective digital
currency based
system and
advancement in the
business model.

The report also Strong evidences The benefits have In terms of benefits,
includes have been been addressed as the major challenges
beneficiaries of this incorporated from the per the problem are the regulator and
system. different authentic statement. These risk management
and reliable sources. include – reduction in issues that have been
fraudulent activities, stated in the report.
smart contractors,
identification of
customers, trading
platforms and others.

The report includes This data has been The benefits of The regulators matters
complete gathered from effective governance are strong therefore,
governance authentic sources. will be greater there are less chances
standards. These are the strong transparency, impact of challenges against
evidences to support on investors, them.
the views. developing a
competitive position,
real time accounting
and many others.

Risk Management These risks are All the identified risks Readers can identify
schedule and important to address will be useful to more risks and hence,
assessment have in order to address the identified these can be
been included. successfully problem and incorporated.
implement the new efficiently implement
payment system at the proposed
ANZ. solution. ANZ needs
to consider the
strategic risks,
reputational risks,
information and
regulatory risks.
Along with this,
operational and IT
risks as well.