DLT is not a solution to every problem, warn SFT Technology Symposium panelists
Distributed ledger technology (DLT) is not a solution to every problem and banks need to find valid use cases that work for them, said panelists at this year’s Securities Finance Technology Symposium.
The statements were made during the “Digital Assets in Securities Finance” panel, which examined the current state of digital assets in the market and explored possible futures for the industry.
Ted Allen, director of business development, securities finance and collateral at FIS, was quick to remind the public that the phrase “digital assets” doesn’t just refer to cryptocurrencies — in fact, they don’t fall within the purview of the securities finance industry. Instead, banks are seeking to tokenize existing assets and bonds, improve the efficiency of their current business, and ultimately issue digitally native assets.
This process won’t happen quickly, Allen warned, calling the transition an “evolution” and a “gradual migration” from traditional to new rails, with both forms coexisting for many years before a digital approach is fully adopted.
The coexistence of old and new can be challenging for many market participants. Richard Glen, solution architect at HQLAX, highlighted how HQLAX developed an initial “one-sided” version of their securities lending solution to help lenders integrate their lending operations with a digital ledger without impacting their borrowers’ collateral management. This step-by-step approach allows for more stable workflow integration, allowing the market to gain confidence in new ways of working before realizing the full benefits of a delivery versus delivery mechanism, he said.
Another concern around digital assets may be the questions of ownership, another panelist suggested. If something goes wrong, it is often unclear where the rights lie. Because every digital asset has a different answer to this, market participants want to know clearly where they stand.
David Shone, director of market infrastructure and technology at the International Securities Lending Association, stated that market demand is strong, with the association’s digital steering committee questioning how the industry should start using digital assets in their day-to-day operations. He emphasized the need for standardization, legal frameworks and regulation, along with education. Market participants should view digital assets as just another asset class, he said, with the misconception that the technology is the product, rather than the asset itself, leading many to be wary of participating.
Trust comes from a product or system that works, Allen said. Regulations may not necessarily be the only solution to the lack of trust in digital assets – people just need to see them as a viable and effective opportunity. Glen added that greater ecosystem involvement will help with this issue, proving that digital assets and the systems around them work and gain industry trust.
He then emphasized the importance of an easy transition for customers, who want to be able to use their current infrastructure to view and process digital assets alongside their traditional counterparts. The importance of infrastructure that can support all market blockchains was also mentioned as a priority.
With regard to central bank digital currencies (CBDCs), the panel raised the issue of a lack of consistency across jurisdictions, particularly with regard to tax laws, which can be a barrier to adoption.