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New trends in the financial sector - Prospects of growing electronification in the capital markets (fintech, blockchain, electronic platforms…)

Reinventing the future of financial markets infrastructures

By Howell Tim - Chief Executive Officer, Euroclear


For the last twenty years the technology which underpins clearing and settlement infrastructures, has remained relatively stable. However, in the last twelve months we have witnessed the start of significant and potentially widespread disruption through the development and adoption of Blockchain and Distributed Ledger Technologies. Such technological innovation has appeared at the same time as the financial services industry is coping with the implementation of regulatory change, political and economic uncertainty and rising risk complexity. Given these pressures, it is no surprise that financial institutions are today re-thinking their approach to operations and costs.

Blockchain (or distributed ledgers) offers a new approach to data management and sharing, potentially resolving many of the inefficiencies in capital markets. The prize on offer is a new architecture, where all capital market participants work from common datasets, in near real-time, and where supporting operations are either streamlined or even made redundant.

Technology experts in Fintech start-ups, incumbent market infrastructure providers, including Euroclear, and banks are already working on the underlying technology and its potential uses. Some have already made announcements about replacing their legacy platforms with the new technology.

However, the journey from today’s systems to a new technological paradigm will take time. The obstacles to be overcome are significant, and it is far from clear what will ultimately emerge. In a recent study which we undertook with Oliver Wyman we saw three likely routes to the adoption of such technology:
• Challenger disruptions developed outside of the core capital markets ecosystem which could be operational within 24 months.
• Collaborative efforts to shift the existing value chain to blockchains. Such efforts are already starting but it is likely to take more than ten years to overhaul financial market infrastructure, for instance.
• Mandated change where policy makers begin to direct the industry to introduce new market infrastructure, so that costs are reduced or that operational or systemic risk is lessened.

The journey from today’s systems to a new technological paradigm will take time.

A considerable number of aspects of law and regulation will also need to be reinterpreted or changed to support the development of such technology. These issues include the legal definition of the finality of settlement and understanding how the concept of a physical and local “golden record” can be managed in an environment where data is distributed across ledgers globally.

The industry is on the cusp of major disruptive technological change and innovation which will challenge both the industry and the regulatory authorities. Regulators themselves will need to work closely alongside the industry to ensure that the new technology can evolve and develop in a safe and efficient way and that a fair and competitive level playing field is established between new entrants and existing providers.