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: Navigating a Complex World: Best Data Practices in Sanctions Screening

As rising geopolitical uncertainty prompts an intensification in the complexity and volume of global economic and financial sanctions, banks and financial institutions are faced with a daunting set of new compliance challenges. The risk of inadvertently engaging with sanctioned securities has never been higher and the penalties for doing so are harsh. Traditional sanctions screening...

BLOG

ace Seeks to Disrupt the Very Idea of ‘Digital’ for Financial Institutions

For more than a decade, financial institutions have been told to go digital. Data strategies have been written, platforms migrated to the cloud, and front-end experiences wrapped in slick apps. But for Niamh Kingsley, founder of ace, that conversation is already out of date. Her new firm, launched in November as a specialist post-digital advisory...

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

Valuations – Toward On-Demand Evaluated Pricing

Risk and regulatory imperatives are demanding access to the latest portfolio information, placing new pressures on the pricing and valuation function. And the front office increasingly wants up-to-date valuations of hard-to-price securities. These developments are driving a push toward on-demand evaluated pricing capabilities, with pricing teams seeking to provide access to valuations at higher frequency...