European Banking Authority Releases Report on Risks and Benefits of DLT

The European Banking Authority (EBA) recently published a comprehensive report on the risks and opportunities that distributed ledger technology (DLT) can bring to financial firms. The report was released on July 3, Cointelegraph reported.

The report goes in-depth about the influence of fintech and DLT on financial institutions, analyzing DLT applications in global trade and what’s being called a digital identity. The regulatory agency describes digital identity as “information used to represent an entity in an informational system.”

A consortium of Spanish Banks has already been formed to create digital identities for their clients with the aim of speeding up transactions, diminishing fraud cases, and decreasing money-laundering activities. It’s reported that the consortium has already completed a Proof-of-Concept called Fast Track Listing, which can accelerate the issuance of warrants from more than one week to 48 hours.

While the collective effort of these financial firms shows promising success for the future, the European Banking Authority cautions about technological infancy and legal and “regulatory uncertainties.” The analysis cites probable contrasting laws between DLT nodes and regulatory restrictions on various territories.

“For example, a digitally signed contract might not be enforceable in all the jurisdictions. It is essential to establish the applicable jurisdiction, in case of conflict, and the dispute mechanisms, when a dispute arises,” the report said.

Despite the warning, the EBA also acknowledges the benefits that DLT brings to the table. The regulatory body mentioned that the most promising of these are increased efficiency, lower operating costs, and reduction of irregular document alteration and financial replication.

“DLT enables a common and almost real-time view of a trade transaction stored in a shared ledger for all participants involved, creating a level playing field for all parties and eliminating their reliance on paper instruments exchanged among them,” the EBA explained. “ A shared view could rationalize the manual effort and reconciliation processes, with consequent savings in time, money and resources.”

The European Banking Authority also noted the use of DLT in storing and updating important data of individuals. Through this system, institutions can easily identify individuals who are considered high-risk, increasing the compliance of financial institutions surrounding customer due diligence (CDD).