Lobby Group’s Report Highlights DLT’s Promise
In a recent report published on May 16, the Global Financial Markets Association (GFMA), a lobby group representing the traditional finance sector, highlighted the potential of Distributed Ledger Technology (DLT) in saving the industry around $100 billion annually. The GFMA, in collaboration with the Boston Consulting Group and other entities, called upon both regulators and traditional financial institutions to take a closer look at the potential benefits of this technology.
Distributed Ledger Technology, or DLT, is a broad term referring to a system that records transactions and digital information. A blockchain is a specific type of DLT. According to GFMA CEO Adam Farkas, “Distributed ledger technology holds promise for driving growth and innovation. This potential should not be ignored or prohibited where regulatory oversight and resiliency measures already exist.”
Streamlining Processes with DLT
The report estimates an additional $100 billion could be saved by using DLT to streamline collateral processes in derivatives and lending markets. Furthermore, smart contracts, when used to automate and fortify clearing and settlement processes, could cut overheads by $20 billion each year.
Sectors Benefiting Most from DLT
Clearing and settlements are the systems that could gain the most from implementing DLT, with custody and asset servicing following closely behind. The Boston Consulting Group’s analysis suggests that primary markets and secondary trading might not experience significant changes from DLT, but tokenization could offer improved risk mitigation and enhanced liquidity.
Adoption and Challenges
While DLT is seeing increased adoption globally — with the European securities clearing firm Euroclear exploring DLT integration for settlements — there remains a significant room for improvement in implementing this technology into existing financial systems. For instance, last November, the Australian Securities Exchange scrapped its plans to upgrade its quarter-century-old clearing and settlements system with DLT, leaving a $170 million gap in its budget.
The Future of DLT in Finance
With Citi investment bank predicting that the global market for blockchain-based tokenized assets could reach a staggering $5 trillion by 2030, the GFMA’s report underlines the importance of considering DLT more seriously in the traditional finance sector.