DLT 'entering capital markets mainstream'

Distributed Ledger Technology (DLT) is beginning to reshape markets as financial institutions and technology providers move from experimentation to implementation, according to a new report from the World Economic Forum and the Boston Consulting Group.

The report, which explores the increasing commercialisation of DLT such as blockchain in capital markets, was based on findings from eight global workshops and more than 100 interviews with executives from leading financial institutions, FinTechs, regulators, and adjacent industries.

It found that products enabled by DLT such as immutable distributed databases that ensure data is consistent, accurate, and up to date across participants, are becoming a reality across a range of asset classes and jurisdictions.

However, the report found that total disintermediation and wholesale digital transformation remain far from being realized, with significant headwinds holding back full implementation.

The report states: “Market forces, supported by regulatory and technical developments, are pushing participants in capital markets to consider using DLT to enhance efficiencies, reduce operating costs, and create new business models.”

DLT is particularly well suited for optimizing balance sheet management through faster and more efficient capital and liquidity deployments, automating or eliminating manual processes such as data reconciliations and removing non-value-adding counterparty risk and complexity.

However, the report also finds that other market-wide challenges will continue to inhibit DLT adoption, including the need to restructure business processes, challenges related to legacy systems, and ongoing regulatory and legal clarification needs.

Matthew Blake, head of the future of financial Services at the World Economic Forum said: “Following several years of intense hype, examples of use cases where inefficiencies and challenges are being solved with blockchain are starting to emerge across capital markets.”

“With the future for blockchain in financial services still being defined, a nuanced look at the opportunities this technology offers right now is particularly important for the financial services industry.”

The report breaks down the market opportunities and technical enablers across six asset classes and adjacent product lines—equity markets, debt markets, securitized products, derivatives, securities financing, and asset management.

“Distributed Ledger Technology has come of age as it begins to enhance efficiencies, reduce operating costs, and create new business models in capital markets, but the use cases and solutions are respective to each asset class,” said Kaj Burchardi, managing director at BCG Platinion.

“Whilst this makes sense from a commercial perspective, it has led to a complex patchwork of initiatives. For capital markets to unilaterally adopt DLT, they will require cross-institutional alignment to realize the game-changing market opportunities it can offer.”

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