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.

Read PDF in full here.

About Richard Kastelein

Founder of industry publication Blockchain News, partner at ICO services collective CryptoAsset Design Group (helped raise over $200m+), director of education company Blockchain Partners (Oracle Partner) and ICO event organiser at leading industry event  CryptoFinancing (first ICO event in Europe) - Richard Kastelein is an award-winning publisher, innovation executive and entrepreneur. He sits on the advisory boards of half a dozen Blockchain startups and has written over 1200 articles on Blockchain technology and startups at Blockchain News and has also published pioneering articles on ICOs in Harvard Business Review and Venturebeat.
 
Kastelein has spoken (keynotes & panels) on Blockchain technology in Amsterdam, Antwerp, Barcelona, Beijing, Brussels, Bucharest, Dubai, Eindhoven, Gdansk, Groningen, the Hague, Helsinki, London, Manchester, Minsk, Nairobi, Nanchang, San Mateo, Shanghai,Tel Aviv and Venice. His network is global and extensive.
 
He is a Canadian (Dutch/Irish/English/Métis) whose writing career has ranged from the Canadian Native Press (Arctic) to the Caribbean & Europe. He's written occasionally for Harvard Business Review, Wired, Venturebeat, The Guardian and Virgin.com and his work and ideas have been translated into Dutch, Greek, Polish, German and French.
 
A journalist by trade, an entrepreneur and adventurer at heart, Kastelein's professional career has ranged from political publishing to TV technology, boatbuilding to judging startups, skippering yachts to marketing and more as he's travelled for nearly 30 years as a Canadian expatriate living around the world.
 
In his 20s, he sailed around the world on small yachts and wrote a series of travel articles called, "The Hitchhiker's Guide to the Seas' travelling by hitching rides on yachts (1989) in major travel and yachting publications. He currently lives in Groningen, Netherlands where he's raising three teenage daughters with his wife and sailing partner, Wieke Beenen.

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