In a recent speech given at the Bank of England Conference on Fintech innovation, Executive Director of ESMA (European Securities and Markets Authority) Verena Ross, addressed the impact and future of blockchains and distributed ledger technologies (DLT) in the financial arena.
In her speech, Financial Innovation: towards a balanced regulatory response, Ross said that institutional interested in shifting away from cryptocurrencies:
“As time passed, ESMA became aware that market participant’s focus was largely shifting from virtual currencies as such to the underlying technology.”
ESMA has been watching the digital currency space since 2013, and in their view, the underlying technology of virtual currencies can cause a significant disturbance to the current infrastructure supporting the financial system.
“However, there was a clear consensus that the underlying core distributed ledger technology had many potential uses across the lifecycle of the investment chain and could have significant effects on the status quo.”
Ross’ speech focused particularly on the securities settlement industry, where she believes the effects of distributed ledgers will be felt the most, “Our initial research finds that the potential benefits sit more squarely in the post-trade environment. We have found that clearing and settlement, collateral management, record of ownership and securities servicing are the areas where the technology is most likely to bring useful changes” said Ross.
Ross also referred to investment products based on digital currencies as “marginal” at best, and stated that the ESMA is continuing to monitor the situation in case there are any “risks to investors”.
While the director’s comments were very supportive of DLT, she also mentioned that the nascent technology needs to be thoroughly tested to ascertain if it can handle “large volumes”. Ross also clarified that the ESMA is still considering if any new regulations are even needed for the implementation of DLT in the financial system.
She said:
“ESMA will continue its work on the DLT in an effort to determine whether a regulatory response to the deployment of this technology to financial markets is necessary.”
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