On May 29, 2017, President of the European Central Bank Mario Draghi addressed the topic of financial innovation to the European Parliament's Committee on Economic and Monetary Affairs (ECON) in Brussels. In the speech, Draghi highlighted that use of Distributed Ledger Technology (DLT) could facilitate FinTech innovation, but only after the technology undergoes a thorough assessment.
“One of the most active fields of FinTech innovation which might affect the processing of payments and securities is that of distributed ledger technologies (DLTs), such as the blockchain. Given the rapid pace of development in this field, there is a need to constantly monitor and assess potential new or more pronounced risks resulting from the application of new technology such as DLTs to payment, clearing and settlement infrastructures in particular.”
Draghi’s comments remain consistent with previous statements from EU authorities. In April, the Joint Committee of the European Supervisory Authorities released a report that identified DLT as a risky payment and security infrastructure due to its proclivity to outpace regulations and laws. As a result, the Joint Committee assessed that the technology indirectly “anchors cyber threats” to financial institutions.
Payment and security infrastructures play a large role in market stability and efficiency of the financial sector and European economy. However, payment and security infrastructures are susceptible to a number of legal and operational risks, mainly because all participants within the system remain dependent upon the same infrastructure. Nevertheless, Draghi hinted at a possible solution to the EU’s DLT groans – the establishment of a universal DLT standard in order to mitigate market inconsistencies.
“One such possible risk is an increase in market fragmentation if different DLT approaches were to become firmly established in parallel in different Member States. Moreover, the Eurosystem oversight framework has to remain effective if we are to discharge our responsibility in this new environment.”
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