2016年-SWIFT环球同业银行金融电讯_Blockchain_settlement_-_Regulation_innovation_and_application_36页_1mb

Blockchain Settlement: Regulation, Innovation and Application

Core Content

This document explores the potential of Distributed Ledger Technology (DLT) in the post-trade securities settlement environment, focusing on the regulatory and legal implications. It is prepared by Euroclear with the support of fintech lawyers from Slaughter and May, aiming to provide a comprehensive analysis of how DLT can be applied and the challenges it presents.

Main Points

Introduction to Blockchain and Its Use in Clearing and Settlement

• Blockchain was originally designed for recording cryptocurrency transfers in a semi-anonymous environment.
• It is now being explored for use in various financial services, including portfolio management, collateral management, and KYC processes.
• This paper specifically examines DLT's application in securities safekeeping and settlement, primarily within a European context.

Role of CSDs

• Central Securities Depositories (CSDs) are key financial market infrastructures that process securities transactions.
• They maintain book-entry systems and offer core services such as account maintenance, settlement, and notary functions.
• Ancillary services include corporate action processing, securities lending, and collateral management.

Benefits of DLT in Securities Settlement

• Reduced settlement latency: DLT can streamline the settlement process by ensuring all parties share the same data set.
• Reduced operational and custody risk: By eliminating the need for reconciliation and reducing database redundancies, DLT can lower risk exposure.
• Increased transparency: DLT can provide a single master record of the chain of custody, making it more transparent for investors, issuers, and regulators.
• Reduced intermediation: DLT can reduce the need for multiple intermediaries in recordkeeping.
• Increased data security: The immutable nature of blockchain enhances data integrity and security.

Smart Contracts

• Smart contracts are self-executing agreements stored on a blockchain.
• They can automate corporate actions and other settlement processes.
• However, they are not a 'silver bullet' for complete automation due to the need for human decisions in the lifecycle of securities.

A Model for Blockchain-Based Settlement

• A "utopian" model is proposed where each security is recorded on a blockchain asset ledger, and each investor's cash balance is recorded on a separate cash ledger.
• Transactions are validated and executed through a consensus mechanism, with the signed transaction broadcast to all nodes.
• Smart contracts can automatically update securities accounts, such as crediting dividends or adjusting margins.

Key Legal and Regulatory Considerations

Relevant Laws and Regulations

• Central Securities Depositories Regulation (CSDR): Harmonises settlement processes across the EU and imposes requirements on CSDs.
• Settlement Finality Directive (SFD): Ensures that settlement transactions are final and not subject to reversal, even in the case of insolvency.
• CPMI-IOSCO Principles for Financial Market Infrastructures: Provides a framework for operational resilience, settlement finality, and other key requirements.

Regulatory Challenges

• DLT does not require specific new legislation or regulation in itself, as the CSD is the authorised institution.
• The existing regulatory environment is not fully prepared for DLT, raising several open questions:
  • The role of central banks in DLT-based settlement.
  • Legal certainty around securities accounts in a distributed environment.
  • The management of keys, smart contracts, and asset issuance.
  • Interoperability and migration between DLT and non-DLT systems.
  • Data protection and cyber resilience requirements.

Certainty and Correctability

• A blockchain-based settlement system must ensure certainty of settlement (finality of transactions) and certainty of operation (operational resilience).
• Settlement finality is crucial to meet the requirements of the SFD and CPMI-IOSCO Principles.
• Correctability is necessary to address errors or issues in the system, which is not naturally supported by DLT's immutable nature.

Regulatory and Legal Recommendations

• Regulators and legislators should consider issuing guidance or formal principles to address the legal and regulatory implications of DLT in securities settlement.
• In the long term, a revision or overhaul of existing regulatory rules may be necessary.
• Coordination at both EU and global levels is essential to ensure consistency and clarity.

Conclusion

• While DLT presents significant opportunities for the post-trade securities settlement industry, it also poses complex legal and regulatory challenges.
• CSDs may retain a central role in a blockchain-based settlement system, particularly in managing keys, smart contracts, and ensuring regulatory compliance.
• The evolution of DLT in this space will require a balanced approach that ensures financial stability and investor protection while embracing innovation.

Appendix

• The paper includes an appendix discussing the long-term regulatory landscape and potential future developments in the use of DLT for post-trade settlement.

Summary of Benefits

• Reduced settlement latency
• Reduced operational and custody risk
• Increased transparency for issuers, investors, and regulators
• Reduced intermediation
• Increased data security

Summary of Legal and Regulatory Issues

• Certainty of settlement and correctability
• Role of central banks
• Legal certainty and securities accounts
• Insolvency of participants
• Interoperability and migration
• Data protection and cyber resilience

Summary of Smart Contract Potential

• Smart contracts can automate corporate actions and settlement processes.
• However, they cannot fully replace human decision-making in the lifecycle of securities.
• They may be used in conjunction with traditional systems to enhance efficiency and accuracy.

Summary of CSDs' Role in a DLT Environment

• CSDs may retain a central role in managing key aspects of DLT-based settlement systems.
• They may provide additional infrastructure services, such as key management and smart contract governance.
• The need for regulatory coordination and oversight remains essential to ensure market stability and investor protection.