A new report from the Global Financial Markets Association (GFMA) suggests that distributed ledger technology (DLT) can provide “transformative benefits” for capital markets, but emphasizes the need for regulators to adopt a more innovative approach.
Co-authored with the Boston Consulting Group, Clifford Chance, and Cravath, Swaine & Moore, the report examines the potential opportunities and risks associated with DLT and DLT-based securities while evaluating the current legal, regulatory, and risk management frameworks.
It highlights three emerging use cases: collateral management, asset tokenization, and sovereign and quasi-sovereign bonds. The report indicates that DLT could lead to significant cost savings and operational efficiencies, estimating around $20 billion annually in global clearing and settlement costs. Additionally, it could foster innovation-driven growth, broaden market access, and create new liquidity pools when implemented at scale.
Despite its potential, DLT has not yet seen widespread adoption within the sector, prompting the GFMA to urge action from both market participants and regulators. The organization advocates for harmonized global regulatory and legal frameworks, consensus on common standards to enhance interoperability, resource commitments, collaborative efforts, and the development of DLT-based payment solutions.
Adam Farkas, CEO of GFMA, states, “Distributed Ledger Technology holds promise for driving growth and innovation. This potential should not be ignored or prohibited where regulatory oversight and resiliency measures already exist. Policymaking should focus on creating a regulatory framework that supports financial stability and responsible innovation in digital asset markets while also ensuring a level playing field for both new entrants and regulated financial institutions. A technology-neutral and outcomes-based approach to regulation is crucial.”