Blockchain applications and its impact on securities value chain

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Distributed Ledger Technology (DLT) is often described as one of the most disruptive innovations of the last decade, with the potential to bring a number of benefits to financial markets, including more efficient post-trade services, enhanced reporting capabilities for risk management or supervisory purposes and reduced costs. However, its arrival may be accompanied by important challenges, e.g. interoperability, governance and privacy issues, that should be carefully addressed before it becomes widely dispersed. Also, DLT may create or exacerbate some risks, although the exact nature and level of those risks are difficult to assess at this stage.

Despite a number of promising ‘proof of concepts’ and some targeted applications, the technology is still in its infancy. Close and active collaboration between regulators, FinTech firms and existing service providers is crucial to ensure that technological innovations bring tangible value to clients. Financial market infrastructures are key in this collaboration due to their knowledge of the market, the customers and the experience of performing the regulated functions.

While some will argue that any regulatory action would be premature given that the technology is still at an early stage and practical applications are limited both in number and scope, several concepts or principles (e.g. legal certainty attached to DLT records or settlement finality) may require clarification. Finally, beyond pure financial regulation, broader legal issues, such as corporate law, contract law, insolvency law and competition law, may affect the deployment of DLT.