A newly released report by the Global Financial Markets Association (GFMA) emphasizes the "transformative benefits" that distributed ledger technology (DLT) can bring to capital markets. However, the report also calls for regulators to adopt a more innovative approach to fully leverage these benefits.
Developed in collaboration with Boston Consulting Group, Clifford Chance, and Cravath, Swaine & Moore, the report examines the opportunities and risks associated with DLT and DLT-based securities. It evaluates the applicability of existing legal, regulatory, and risk management frameworks in this context.
The report specifically focuses on three emerging use cases: collateral management, asset tokenization, and sovereign and quasi-sovereign bonds.
According to the report, DLT has the potential to deliver significant cost savings and operational efficiency benefits. For instance, it estimates potential annual savings of around $20 billion in global clearing and settlement costs. Additionally, at scale, DLT could facilitate innovation-driven growth, enhance market access, and create new liquidity pools.
Despite its potential, DLT has not yet witnessed widespread adoption in the sector. In light of this, the GFMA calls for action from both market participants and regulators.
The GFMA emphasizes the need for harmonized global regulatory and legal frameworks, consensus on common standards to enhance interoperability, commitment of resources, collaboration, and the development of DLT-based payment options.
Adam Farkas, Chief Executive of the GFMA, highlights the promise of DLT in driving growth and innovation. He asserts that regulatory frameworks should support financial stability and responsible innovation in digital asset markets while creating a level playing field for both new entrants and regulated financial institutions. Farkas emphasizes the importance of a technology-neutral and outcomes-based regulatory approach.