BNY Mellon hosted a blockchain event at its Jersey City, New Jersey, campus on 28th January, an event that, while small in terms of the number of attendees, could have a potentially huge impact on how the bank does business in the months and years ahead.

Like many other financial institutions in the world, BNY Mellon is weighing how to apply the code that underlies bitcoin to new use cases. Last year, the bank revealed that it had used its own digital currency for an internal rewards pilot.

During remarks before the presentation, BNY Mellon chief information officer Suresh Kumar argued that rather than being replaced by the technology, blockchains can help institutions like BNY Mellon pursue new lines of doing business.

He told attendees:

Kumar went on to say that there is a possibility the tech can "remove friction in the financial industry” through the use of the technology, and encouraged attendees to weigh possible solutions during breakout sessions that followed the event.

During his opening talk, Tim Swanson, director of research for New York-based blockchain startup R3CEV, provided an overview of the R3 blockchain consortium, which boasts 42 banking institutions from Asia, Europe and North America, including BNY Mellon, as members.

Swanson outlined how the firm is pushing ahead on development of what he called a "financial-grade ledger", as well as the creation of collaborative working spaces for financial institutions to test blockchain products and possible use cases.

As to what those use cases might be, Swanson was less clear. He told attendees that, based on the conversations he’s had with financial institutions, most appear to be looking in different directions in terms of how to actually apply the technology.

"No one agrees on use cases," he said. "Everyone has their own wheelhouse."

Swanson went on to say that, across the landscape of financial institutions in the world, more than 500 employees have been dedicated to blockchain projects.

He argued that this number will grow as those firms move toward developing new proofs-of-concepts as ideas around use cases take further shape.

Next, Houman Shadab, professor and co-director of the Center for Business and Financial Law at the New York Law School, gave a broad overview of the regulatory landscape in the financial industry, establishing that environment as context for how distributed ledgers could be deployed within existing legal frameworks for banks.

He opened with a discussion of a recent paper produced by settlement giant DTCC, which recommended the industry experiment with the technology but cautioned against the mounting hype and its capabilities.

Shadab stressed that banks, when looking at possible development of a distributed ledger for a certain aspect of their business, need to weigh every angle of how such use would play out in the real world.

"If we install a distributed ledger here, what do I need to do to effect a certain activity, a certain trade?" he said.

Shadab also pointed out the challenges a financial institution would face in moving from an experimental phase to a real-world deployment of a blockchain. These risks include the need to integrate with systems in use today and data privacy concerns across geographic jurisdictions.

The last presentation focused largely on the legal risks involved with using distributed ledgers, particularly when it comes to the question of establishing ownership of a particular asset.

There, Barney Reynolds, chief of the Global Financial Institutions Advisory & Financial Regulatory Group for London-based legal firm Shearman & Sterling, called ownership a "massive problem" that could lead to issues that end up in a court, or in courts in multiple legal jurisdictions.

"The question is, where is the asset?" he asked. "If it’s in the ether, there is insufficient clarity for the law to determine that question."

Reynolds speculated that courts weighing cases involving blockchain-based assets may have a difficult time determining the outcome of such litigation. As it stands, no such cases have been brought before a court.

"The problem with the blockchain is that no one bank, no one custodian is the owner of truth," said Reynolds. "What happens if the records are contested?"

Reena Sahni, a partner with the Shearman and Sterling legal group, went on to say during a question-and-answer follow-up that a solution would lie in creating a clear legal framework for establishing how property ownership is managed within a blockchain system.

Further, she suggested that the situation could turn into a positive one for banks.

"I think that, certainly, regulators and the law wouldn’t be agnostic toward it," said Sahni. "I think there are massive opportunities, and likewise, there is some inherent skepticism with the regulators that actually provides an opportunity to overcome."

Image Credits: 360b / Shutterstock.com, Stan Higgins for CoinDesk