On 28 September 2022, the Bank of England published a speech by its Deputy Governor for Financial Stability, Sir Jon Cunliffe, entitled Innovation in post trade services – opportunities, risks and the role for the public sector.
Key points in the speech include:
- In recent years, regulators and central banks have become increasingly focussed on ‘crypto’.
- Regulators need to begin extending existing standards and regulatory regimes to crypto before not after it has become systemically important.
- Thought also needs to be given about the potentially disruptive impact of crypto technologies on market infrastructure, the trading, clearing, settlement, and custody machinery that enables global capital markets.
- Consideration should be given to the possibilities for disruption of the current post trade landscape that might come from the innovative approaches and technologies that have been developed for the trading, clearing and settlement of cryptoassets. This includes the potential for consolidation across both trade and post-trade functions. Perhaps most far reaching, smart contracts appear to have the potential to go much further than integrating trade and post trade functions into a single operation.
- Operational resilience of distributed ledger technology (DLT) based systems needs to be proven over time.
- The development of instantaneous settlement poses challenges for the management of liquidity as it requires all cash and securities to be in place at the time a trade is struck.
- It is unclear how feasible and effective interoperability between DLT platforms would be and how effective interoperability between markets and services running on DLT and those running on conventional systems.