The executive director of the European Securities and Markets Authority (ESMA), the European Union’s top securities watchdog, has said that the agency believes blockchain technology could enhance the post-trade process.
ESMA has spent more than a year investigating the impact of digital currencies like bitcoin on the investment landscape in the EU, and in April issued a call for more information on the technology in a bid to assess how it could affect the securities trade lifecycle.
Executive director Verena Ross spoke earlier this month at an event in the United Kingdom organized by the Bank of England and the London Business School. In remarks, Ross indicated that, while the process is still ongoing, ESMA believes the distributed ledgers may see broad usage in the post-trade environment – echoing comments made in January at an ESMA event in Paris.
Ross stated: “We have found that clearing and settlement, collateral management, record of ownership and securities servicing are the areas where the technology is most likely to bring useful changes. It does so through the provision of a unique reference database, instantaneous reconciliation across all participants, immutable shared records and transparent real-time data.” Yet Ross said that ESMA sees risks in these possible applications, particularly in the areas of scalability and security, as well as interoperability with existing financial systems.
“In particular, we question the ability of the [distributed ledger technology] (DLT) to handle large volumes, to manage privacy issues and to ensure a high level of security,” she said. “Furthermore, as we anticipate that the DLT is deployed gradually, it will need to demonstrate its ability to interact with certain systems that must continue to co-exist with the DLT, e.g. trade platforms.”
Further, she said, the use of the technology “may raise fair competition issues if there emerges a monopolistic environment”, and argued that […]
