European Securities and Markets Authority (ESMA) Reports Problems in Merging Blockchain Tech into Existing Financial Markets

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The  European Securities and Markets Authority (ESMA) has issued a report  stating Blockchain technology could help speed up the clearing and settlement of financial transactions, record ownership of assets and support regulatory reporting, among delivering other benefits… But it warned “technological issues” would need to be addressed for the potential of Blockchain in the market to be realised.

ESMA believes that the DLT will need to overcome a number of possible challenges and shortcomings before its benefits can be reaped. Some of these challenges are related to the technology itself. Others are mainly related to possible governance, privacy and regulatory issues. 

The capacity of the DLT to fit into the existing regulatory framework may limit its deployment. The key EU regulations likely to apply and how they would reflect in terms of requirements for the participants to the DLT network.

Legal issues, such as the legality and enforceability of the records kept on the DLT, also need to be carefully considered. Differences in securities and company laws across the EU may also interfere with a wide deployment of the DLT in securities markets in the EU. Supervising a DLT ‘network’ might be more complex than supervising central market infrastructures, in particular considering that the different nodes might be established in different jurisdictions and subject to different privacy, insolvency and other requirements.

It seems unlikely that the DLT would be deployed across all market segments and activities simultaneously. In a step-wise scenario, the DLT would need to interoperate with existing market infrastructures and the attendant systems, at least in the short to medium term. In addition, separate ledgers might be used for different asset types and these ledgers will need to interact with one another.

This raises a number of technical challenges. Not all market participants may choose to build interfaces to the new technology and existing market infrastructures might have no immediate benefit in starting interoperating with different ledgers. Also, many of the benefits of the DLT could be reduced, unless it is widely adopted by market participants and market infrastructures.

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About Richard Kastelein

Founder, Publisher and Editor in Chief of industry leading online publication, Blockchain News and co-founder and director at Blockchain Partners in London/Amsterdam/NYC. Kastelein is also an advisor with a number Blockchain startups doing ICOs including Humaniq.co where hs is interim CMO, DECENT.ch, Inchain, Chronobank, eGaas and others. He is regarded as one of the top journalists by the Blockchain and fintech communities – as is evident by his entry in the Top 150 Fintech journalists online and in the top 10 of the Blockchain Top 100 List.

As a prominent keynote presenter, he has spoken on Blockchain at events in Gdansk, Amsterdam, Minsk, Dubai, Antwerp, Eindhoven, Bucharest, Nairobi, Tel Aviv, Manchester, Brussels, Barcelona etc, where he helped spread the cause for Blockchain technology and cryptocurrency and, consequently, has built a notable network in the scene.

He’s also a director of a Dutch foundation called The Hackitarians and has run innovation events in London, San Francisco, Berlin, Amsterdam and other cities around the world on topics such Blockchain, Health, Energy, Internet of Things, AI etc.

In 2013, the European Commission appointed him as an expert for overseeing financing for emerging startups as a part of the European Commission’s 90 billion euro Horizon 2020 project, created in Brussels to promote innovation as a driving force of job creation and business ventures across Europe. He has also worked as an external expert for Innovate UK since 2012, judging startups for the UK government.

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