The European Central Bank (ECB) has advocated widespread technological developments will not hinder current industry regulations.
Speaking at the global custody forum in London, Helmut Wacket, head of the ECB’s market integration division, suggested that market participants would still need to comply with regulations as they stand, despite the onset of disrupted ledger technology (DLT).
“A lot of discussion has happened around what regulators could or should do in this context,” said Wacket.
“Regulation as it is usually drafted is largely technology neutral so the fact that we have new technology does not change any regulatory requirements and if for example distributed ledger technology is applied, regulatory requirements under EMIR and CSDR would still have to be complied with.
“Of course we may have new actors in this space but then the conversation would turn to how their role would comply with respective regulation.”
Wacket’s comments follow a recent ESMA report on DLT explaining that regulators face a ‘balancing act’ as they work to understand the risks that new products or processes formed from blockchain could introduce while also having to comply with existing regulations.
The research also warned that DLT could render some processes in the trade lifecycle redundant.
A report by Standard Chartered in June this year revealed that blockchain could potentially replace the ECB’s TARGET2-Securities (T2S) initiative if the technology developed exponentially quickly.
Wacket also suggested that discussions still needed to take place on how technological developments could be compatible with the current industry landscape.
“So far technology discussions have focused on technical possibilities and I would say technology is able to do a lot, but many essential questions from a central bank perspective have not been addressed yet,” said Wacket.
“Technology can do a lot but how about settlement finality for example? Most of the discussions focus on technological possibilities but the legal and regulatory regime that currently exists will have to be checked to see if this is compatible with technology. “