Post-trade environment ‘not designed’ for blockchain

Research reveals doubts still remain over the widespread implementation of DLT in the post-trade space.
By Paul Walsh
The current legal and regulatory environment of the post-trade space is not designed to facilitate wide spread implementation of distributed ledger technology (DLT), according to Euroclear.

A new report from Euroclear suggested that questions remain over the technology which has been billed by custodians as being able to streamline parts of the industry.

Particular questions posed by the report include how central banks could participate in a DLT environment and the use of central bank money for securities settlement.

The paper also suggests that legal questions remain unanswered, particularly relating to the legal concept of securities accounts and the law applicable to such accounts.

The question of ‘legacy’ systems is also raised with the research questioning the operability between DLT and non-DLT systems in several worldwide jurisdictions as well as how this will affect data protection issues and cyber resilience requirements.

Blockchain technology has been hailed by custodians as being the future of the industry with the potential to streamline processes such as settlement, clearing and corporate actions.

Earlier this month, blockchain start-up SETL was revealed as one of the first 24 firms to be accepted into the UK Financial Conduct Authority’s (FCA) regulatory sandbox.

However, doubts still remain over the potential of the technology, with research from SIX Securities Services in October revealing that regulatory uncertainty and a lack of internal expertise is acting as a barrier to entry.

Participants in the SIX research also estimated that it would take an average of six years before blockchain is widely implemented despite one in five participants piloting a specific blockchain service.

Speaking at the time of the SIX research, Thomas Zeeb, CEO for SIX, revealed that the technology had yet to prove itself.

“Blockchain has the potential to make a number of business models and intermediaries obsolete, which isn’t necessarily a bad thing but until the industry has clear indications on sustainable use cases it will be difficult to convince top managers to bring their trusted systems into these new domains.”