About a-team Marketing Services
The knowledge platform for the financial technology industry
The knowledge platform for the financial technology industry

A-Team Insight Blogs

ESMA States its Case on Distributed Ledger Technology

Subscribe to our newsletter

The European Securities and Markets Authority (ESMA) has stepped into industry discussion on the pros and cons of distributed ledger – or blockchain – technology (DLT) and concluded that regulatory action is premature at this stage, but may not be in the longer term.

The authority issued a report this week, The Distributed Ledger Technology Applied to Securities Markets, that is based on responses to a discussion paper issued in June 2016 and sets out ESMA’s views on DLT, its potential applications, benefits, risks and how it maps to existing EU regulation.

The report anticipates that early applications of DLT will focus on optimising processes under the current market structure, particularly less automated processes in low volume market segments. Longer term, and based on industry responses to the discussion paper, it notes the potential of the technology to support clearing and settlement activities.

Possible benefits of DLT in securities markets include more efficient post-trade processes, enhanced reporting and supervisory functions, greater security and availability, and reduced counterparty risk and enhanced collateral management, all of which should lead to cost reductions for financial service providers and their users.

The challenges of DLT discussed in the report include the need for a critical mass of market participants in a segment to adopt the technology, interoperability, governance and privacy issues, and scaling. Potential risks outlined in the report include cyber attacks, fraudulent activity, operational risk if errors are disseminated, fair competition issues, and market volatility.

Taking a stance on regulation and DLT, the report concludes: “ESMA’s understanding is that the current EU regulatory framework does not represent an obstacle to the emergence of DLT in the short term. Meanwhile, some existing requirements may become less relevant through time. New requirements might on the contrary be needed to address emerging risks. Also, a number of concepts or principles, for example the legal certainty attached to DLT records or settlement finality, may require clarification as DLT develops.”

Subscribe to our newsletter

Related content

WEBINAR

Recorded Webinar: Unpacking Stablecoin Challenges for Financial Institutions

The stablecoin market is experiencing unprecedented growth, driven by emerging regulatory clarity, technological maturity, and rising global demand for a faster, more secure financial infrastructure. But with opportunity comes complexity, and a host of challenges that financial institutions need to address before they can unlock the promise of a more streamlined financial transaction ecosystem. These...

BLOG

Inside the FCA’s Data Factory: How the Regulator Is Re-Composing MiFID, EMIR and SFTR Reporting for a New Era

When the UK’s Financial Conduct Authority (FCA) talks about innovation in financial markets, it is often interpreted as guidance for firms and RegTech providers. But one of the lesser-recognised realities – made clear in its recent speech on innovation and human expertise – is that the FCA is itself one of the country’s largest consumers of...

EVENT

Eagle Alpha Alternative Data Conference, London, hosted by A-Team Group

Now in its 8th year, the Eagle Alpha Alternative Data Conference managed by A-Team Group, is the premier content forum and networking event for investment firms and hedge funds.

GUIDE

Entity Data Management

Entity data management has historically been a rather overlooked area of the reference data landscape, but with the increase focus on managing risk, the industry is finally taking notice. It is now generally agreed to be critical to every financial institution; although the rewards for investment in entity data management appear to be rather small,...