Blockchain technology has expanded rapidly in financial markets in the last year, drawing concern among financial regulators. The European Securities and Markets Authority (ESMA), an independent European Union authority, has released a paper on distributed ledger technology (DLT) as it applies to securities markets, including the possible benefits and challenges. ESMA believes DLT is expanding in the securities market, posing new opportunities and risks. In response, the Coin Center, a non-profit research and advocacy organization that monitors public policy issues facing decentralized blockchain technologies, took issue with one of ESMA’s conclusions, that “open” or pemissionless blockchains may not be appropriate for financial services. ESMA Explores DLT ESMA’s 34-page discussion paper explores DLT’s capabilities in the financial sector in detail. While the Coin Center takes issue with some of ESMA’s observations, the ESMA claims it has not advocated a position pro or con on DLT. ESMA wanted to explore DLT from a public policy perspective. The ESMA published its discussion paper to seek stakeholders’ views on its assessment. ESMA noted it is too early to form a definite opinion on whether DLT will address issues such as financial activities, market participants and market infrastructures in an efficient way. ESMA noted DLT could create challenges on the safeguards brought by recent securities’ market regulations, such as if new risks are not addressed by existing regulatory frameworks. DLT could speed the clearing and settlement of certain transactions by reducing intermediaries involved and making reconciliation more efficient. ESMA Cites DLT Benefits DLT could also facilitate the recording of ownership of securities and the safekeeping of assets by promoting a unique reference database, by limiting the ambiguity of contract terms, by expanding the automation of processing, and making reconciliation more efficient. The paper also explores the use of smart contracts. It noted smart contracts […]
