The European Securities and Markets Authority (ESMA) has published a report that analyses the key benefits and risks of distributed ledger technology (DLT) applied to securities markets. The report also looks at how DLT interacts with the existing EU regulatory framework.
ESMA believes that DLT could bring a number of benefits to securities markets, notably more efficient post-trade processes, enhanced reporting and data management capabilities and reduced costs. However, ESMA believes that a number of challenges need to be addressed before these benefits may materialise. These challenges include interoperability and the use of common standards, access to central bank money, governance and privacy issues and scalability. ESMA also notes that DLT is still at an early stage and it remains unclear if the technology will overcome all of the challenges and that DLT may in fact create or exacerbate some risks, although it is premature to assess the exact nature and level of those risks.
ESMA states that DLT does not liberate users from complying with the existing regulatory framework. Importantly, ESMA sees as unlikely that DLT will eliminate the need for financial market infrastructures, such as central counterparties and central securities depositories. However, it does realise that DLT may render some processes redundant or change the role of certain intermediaries through time.
ESMA will continue to monitor market developments around DLT to assess whether a regulatory response may be needed.
View ESMA assesses DLT’s potential and interactions with EU rules, 7 February 2017