FINRA (the Financial Industry Regulatory Authority) has released a report on the implications of blockchain for the securities industry that discusses key implementation and regulatory considerations for broker-dealers.
The report titled ‘Distributed Ledger Technology: Implications of Blockchain for the Securities Industry’ highlights the key features of the Distributed Ledger Technology (DLT). This is followed by its applications in the securities sector including equity market that has private and public company equities; debt market under which, syndicated loans, repurchase agreements, and corporate bonds come; derivative market with credit default swaps; and industry utilities including product reference data and customer ID management utilities.
“In light of the potential for a paradigm shift for several traditional processes in the securities industry through the development of new business models and new practices incorporating DLT, this paper highlights some of the major regulatory issues that broker-dealers may encounter. The discussion involves FINRA rules as well as some rules implemented by other regulators (such as the SEC) that FINRA is responsible for examining and enforcing,” the paper stated.
Although the paper provides a framework for firms to consider the application of various rules, it is not intended to provide specific guidance on facts and circumstances of any particular concept, arrangement or venture. As a part of the report, FINRA invites market participants to engage in a dialogue as they explore DLT and also invite comments on matters for which it would be appropriate for FINRA to consider giving additional guidance.
“As the securities industry continues to expend time and resources in exploring DLT, it is imperative that market participants and regulators collaborate early in the process, to address any potential regulatory gaps that may pose risks or hinder the adoption of the technology,” it added. “This will allow the industry to fully reap the benefits of the technology while ensuring the protection of investors and maintenance of market integrity. FINRA encourages all interested parties to provide comments on all aspects of this paper.”
