During a joint conference with the European Central Bank (ECB) and the European Commission, ECB Executive Board member, Yves Mersch, conducted a speech on Europe’s digitally integrated market. For over a decade, the European Commission, Eurosystem, and the financial field have been working on remedying a very fragmented infrastructure.
"It may be worth exploring the establishment of a truly European issuance service – at least for some supranational debt instruments."
Mersch praised the current T2S System, a pan-European platform for securities settlement used to create a more integrated financial market infrastructure. He described T2S as a significant contributor to the post-trade processes of all participating markets but acknowledged that its success was enabled by the establishment of standards specific to the T2S market. Mersch emphasized that in order to create a “truly integrated European financial market,” gaps in the securities issuance and instant payment settlement system need to be addressed, and distributed ledger technology (DLT) can potentially be utilized to assist with harmonization between the financial markets of EU nations.
“The remaining fragmentation is often the result of legacy and national rules. This fragmentation is an area that calls for action. It may be worth exploring the establishment of a truly European issuance service – at least for some supranational debt instruments. We could even think about the ECB/Eurosystem playing an active role in setting up such an issuance service. And we could consider whether and to what extent new technologies, like distributed ledger technology, can be used in that process.”
Europe has already been proactively looking into the blockchain as a possible solution to patching these gaps in the pan-European financial market. In June 2016, the European Securities and Markets Authority (ESMA) released a discussion paper that assessed the usefulness of DLT for securities issuance. The paper analyzed the potential benefits, such as increased security, streamlining settlement and the clearing of payments, and the savings from cost reduction. According to the European Payments Council (EPC), an international non-profit association created by the European banking sector, 2017 is a decisive year for innovative cross-border instant payment services. The ESMA’s main focus will shift to create a stable platform for instant payment solutions and peer-to-peer mobile payments. Last year, in August 2016, an EPC poll was conducted by industry professionals that revealed 90 percent of interested stakeholders agree that blockchain technology will impact the European payments industry by 2025. The EPC also notes that there should be a standard set for blockchain tech before it reaches its pinnacle.
The EPC states:
“To make blockchain a success for payments on a large scale, regulators should have their say on the status of blockchain transactions and the standards that they should use, such as ISO 20022.”
With the EU maintaining a progressive attitude toward blockchain technology, it’s possible that regulators will look into providing substantial guidelines. The Commonwealth Bank and the Queensland Treasury recently conducted the first government bond transaction on the blockchain. In early 2016, 11 major banks performed a successful inter-bank transaction using the Ethereum blockchain. Although these examples are trials, they are templates for how those potential “gaps in the securities issuance” could be filled. It’s up to both advocates and regulators to impose the proper legislation and guidelines needed in order for blockchain supplementation to be explored in the financial sector.