“The integration of smart contracts and automated processes within clearing and settlement activities is projected to generate global infrastructure operational cost savings of approximately US$15–20 billion annually” – in its recent article titled “Blockchain technology and the transformation of capital markets”, Deloitte experts Carlos Fernandez and Álvaro Arce quote these figures from a study by the Global Financial Markets Association (GFMA). DLT is “not just reshaping isolated processes within capital markets” but changing “the foundational structure of how financial systems operate”, they write.
The article calls DLT’s ability to “unify financial records through a single shared ledger” one of its “most compelling contributions”. “By eliminating redundancies, automating reconciliation processes, and minimising operational risks, DLT addresses some of the most expensive and time-intensive challenges in financial markets.”
Full of potential
It identifies use cases for blockchain in three main areas: tokenisation in funding and investment; collateral management; and tokenisation in payment versus payment (PvP) transactions.
In collateral management, financial institutions struggle with disconnected custody networks and siloes operations. “Collateral is often managed separately based on asset types and transaction types,” the article points out. Tokenisation addresses these inefficiencies by “enabling instantaneous transfers via a centralised DLT network, which streamlines reconciliation and dispute management processes”. It “ensures simultaneous and secure transactions, reducing counterparty risk”.
Conditions must be met
DLT may hold many promises, but Fernandez and Arce emphasise that its potential can only be fully realised if certain conditions are met, namely, integrating a reliable cash-on-ledger framework and interoperability. The latter is “a significant challenge”, especially when “individual entities develop isolated DLTs without standardised protocols”. This “hinders integration with traditional financial systems”. Collaborative efforts are thus a must.
