Some financial regulators are already favoring distributed ledger technology. How Blockchain regulation will influence the future of financial markets?
Blockchain regulation and the future of the industry
The blockchain is now building the new kind of trust – the trust to transactions. According to the CEO of Provenance, Jessi Baker:
“At its heart, a blockchain is a system that allows people who don’t trust each other, to trust each other.”
In fact, the success of a particular brand, product, or service is highly dependent on the level of its trustworthiness. In almost every sector – food, real estate, banking, the reliability of other participants play a huge role in the success determination.
We can even look at the financial products as supply chains of primary and secondary markets. The supply chain is delivering cash in one direction, and shares, derivative, or certificates of deposit in the other. Moreover, Blockchain is customized to deliver transparency and fairness to the market participants.
What are the benefits of Blockchain for regulators?
Back in 2008, financial markets were hit by the global financial crisis. That time, the crisis has caused the lack of trust and huge turmoil across the markets. Following this event, market regulators are still eyeing the market participants closely in order to prevent the 2008 case.
Where digitalization has a big impact on the client interface in financial services industry, it almost did not influence the supply chain. Now, market participants are now waiting for the ledger technology to develop. Thus, the market needs an open, safe, stable, and transparent way to perform transactions with confidence.
In many cases, regulations also have been promoting the technology. Moreover, this allows the financial watchdogs to:
- Reduce systemic risk
- Ensure justice by helping supply meet demand
- Complete transactions precisely without arguments that block supply chains
- Settle trades rapidly and transparently so as to eliminate settlement risk
Regulators engage with Blockchain
The blockchain technology is being favored by financial regulators all over the world. For instance, the US Securities and Exchange Commission (SEC) has established a Distributed Ledger Technology Working Group. The project is aiming to build expertise, coordinate efforts among different SEC divisions and to identify risk areas.
Furthermore, the Bank of England (BoE) in collaboration with a consulting firm, has created a multi-node scalable blockchain environment. This initiative is comprising a number of smart contracts to show the applications of the technology.
Another example comes from Financial Stability Board (FSB). The organization has stated that it is considering the financial stability implications of distributed ledger technology. The European financial markets regulator ESMA and US FINRA are also following the Blockchain regulation trend.
Such sentiment around blockchain might cause more regulators to adopt technology in the near future. Consequently, we can expect more transparent and fair financial market environment.
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