European Banking Authority (EBA) has published a report on the DLT impact on financial institutions. The EBA has presented an extensive explanation of the use cases where DLT can be applied in the field of international trade transactions.
5 July, AtoZ Markets – The European Banking Authority (EBA) has issued a report that aimed to analyze the opportunities and risks that emerge for financial institutions in using the distributed ledger technology (DLT).
EBA Releases Report on DLT Impact on Financial Institutions
The report has been issued on July 3 by the EBA. The organization examines the impact of Fintech and DLT on financial institutions. In the paper, the banking regulator has analyzed two DLT use cases in international trade and “digital identity.” The EBA has defined “digital identity” as the “information used to represent an entity in an informational system.”
The EBA has presented an extensive explanation of the use cases where DLT can be applied in the field of international trade transactions. The banking authority also outlined how DLT can facilitate the streamline of trade transactions’ settlement.
In addition, the report states that DLT and smart contracts offer a range of opportunities. The EBA has singled out the potential efficiency gains, lower risk of duplicate financial and effective management of costs. The report reads:
“DLT enables a common and almost real-time view of a trade transaction stored in a shared ledger for all participants involved, creating a level playing field for all parties and eliminating their reliance on paper instruments exchanged among them. A shared view could rationalize the manual effort and reconciliation processes, with consequent savings in time, money and resources.”
EBA Outlines DLT Risks
Moreover, the regulator highlighted the current use of DLT and smart contracts. The EBA noted that they can pose a number of risks due to the “immaturity of these technologies” and “legal and regulatory uncertainties.” It also mentions a potential conflict of laws in case DLT nodes are located in different countries:
“For example, a digitally signed contract might not be enforceable in all the jurisdictions. It is essential to establish the applicable jurisdiction, in case of conflict, and the dispute mechanisms, when a dispute arises.”
As for the “digital identity” and customer due diligence (CDD), the European banking authority stated that DLT could aid the storage and updates of corporate customer data in a single place:
“This means that additional information required by the institution to meet the enhanced CDD requirements where the customer is considered high risk may already be saved on the platform by other participating institution.”
Furthermore, the EBA highlights that in spite of the fact that DLT is normally seen as more robust than traditional systems, it is still possible that it could pose “Information and Communication Technology availability and continuity risks caused by nodes or the whole network being collapsed maliciously, which could prevent the validation and sharing of transactions.”
Think we missed something? Let us know in the comments section below.