Researchers at the European Central Bank (ECB) have published a new research report on the impact of distributed ledger technology (DLT) on the harmonization of post-trade settlement systems.
Released by the Advisory Group on Market Infrastructures for Securities and Collateral late last week, the 134-page report examines the technology’s possible effect on a variety of services that touch the securities settlement process. It further discusses the implications in the areas of collateral management, asset servicing and data reporting.
Perhaps most notably, the ECB – echoing sentiments expressed previously by the Bank of England – suggested that in a future market where distributed ledgers operate alongside legacy software, both systems will need to be able to communicate as necessary.
The report states:
“If DLT and non-DLT solutions are to coexist, interoperability between the two approaches needs to be ensured. There may be a need to provide ad hoc matching fields where a participant holds both a DLT and non-DLT account.”
That preference for interoperability was showcased in April when the Bank of England revealed that, while it wouldn’t yet use the tech as the basis for its next Real-Time Gross Settlement (RTGS) system, it nonetheless plans to make it compatible for future developments.
Beyond the interoperability push, the ECB report suggests that in the event that smart contracts – self-executing pieces of code tied to conditions on a blockchain – are more widely used, financial data standards such as ISO 20022 may need adjusting to account for their particular features
“The potential use of DLTs might have considerable implications for EU financial market integration. In particular, the market may want to consider ISO 20022 extension into smart contract initiation and coding, as well as DLT-specific concepts,” the report states.
The study notably comes on the heels of a joint release from the ECB and the Bank of Japan early last month, when the two central banks said that they would (at least for now) pass on using the technology for some of their production services.