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DLT a ‘game changer’ for payment, clearing and settlement – CPMI report

The Committee on Payments and Market Infrastructures (CPMI), one of the committees formed by the Bank for International Settlements (BIS), has released a report – Distributed ledger technology in payment, clearing and settlement – that provides an analytical framework on how financial authorities and central banks can apply distributed ledger technology (DLT) in payments, clearing and settlement. It clarifies the uses of DLT in the payments industry, identifying some of the main opportunities and risks.

The CPMI writes: “Central banks and other authorities should weigh the risks of using blockchain and other distributed ledger technology (DLT) in payment, clearing and settlement against potential cost and efficiency savings offered by the technology.”

6 risks associated with distributed ledger

While DLT is an evolving technology that has not yet been proven to be sufficiently robust for wide-scale implementation, its potential benefits for processes such as payments and trade finance are widely understood to include a significant reduction in complexity and increased transparency, while also having the potential to improve security. But there are also risks associated with using DLT for payments, including:

  1. potential uncertainty about operational and security issues arising from the technology;
  2. the lack of interoperability with existing processes and infrastructures;
  3. ambiguity relating to settlement finality;
  4. questions regarding the soundness of the legal underpinning for DLT implementations;
  5. the absence of an effective and robust governance framework; and
  6. issues related to data integrity, immutability and privacy.

CPMI chair Benoît Cœuré said: “Distributed technology could become a game changer for payment, clearing and settlement activities if fintech companies and financial institutions can leverage the technology to meet demanding legal, operational and risk management requirements.”

He continued: “Central banks have traditionally played an important catalyst role in payments and settlements. This report will help central banks, other authorities and the public identify the risks as well as the benefits associated with the emerging technology, which could be the basis for next-generation systems.”

CTMfile take: This report could give some useful insight to all parties interested in the payments industry, providing an analytical framework to review and analyse DLT in its current conceptual, experimental and implementation stage.

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