Bank for International Settlements issues analytical framework on DLT
The committee on payments and market infrastructures at the Bank for International Settlements (BIS), an international financial institution owned by central banks, has issued an analytical framework on distributed ledger technology (DLT) in payment, clearing and settlement.
The report is intended to help central banks review and analyse the opportunities and challenges associated with using DLT as a critical component of the financial system. The committee believes that the framework will help assess the potential of DLT projects, in the conceptual, experimental or implementation phases, to provide operational efficiencies and to make financial markets more robust and resilient.
The suggested framework is aimed at arrangements that involve restricted ledgers and is comprised of four core components:
- Scope: understanding the functionality and nature of service, and the factors for effective implementation.
- Efficiency: evaluating design, functionality, and resource needs while considering speed and costs implications, reconciliation, credit and liquidity management capabilities, and automation features.
- Safety: identifying, monitoring and managing the material risks from using DLT.
- Broader implications: reviewing the impact of using DLT in payments, clearing and settlements on the rest of the financial system.
“Developments to date suggest that DLT bears promise but that there is still a long way to go before that promise may be fully realised. Much work is needed to ensure that the legal underpinnings of DLT arrangements are sound, governance structures are robust, technology solutions meet industry needs, and that appropriate data controls are in place and satisfy regulatory requirements,” says Benoît Cœuré, the committee’s chairman.
“This report will hopefully contribute to the dialogue on how industry can use innovation to support robust, efficient and safe payment, clearing and settlement systems.”
By Soumik Roy, editorial contributor to Banking Technology