Banks call for regulators to take a more innovative approach to DLT

AFME, as a part of GFMA, BCG, Clifford Chance, and Cravath, Swaine & Moore LLP, have released a report calling for regulators to adopt a more innovative approach to DLT in capital markets. The report, titled “The Impact of Distributed Ledger Technology in Global Capital Markets,“ evaluates the potential benefits and risks of DLT and DLT-based securities in capital markets.
The report highlights the transformative benefits of DLT, including cost savings and operational efficiency. It estimates that DLT could save approximately $20 billion annually in global clearing and settlement costs and create a $16 trillion global market for tokenized illiquid assets by 2030. However, the report also acknowledges that widespread adoption of DLT in securities markets has been limited due to various challenges.
To overcome these barriers and promote the development of DLT-based capital markets, the GFMA sets out five calls to action for industry participants and regulators. These include the development of a clear methodology for classifying digital assets, harmonizing global regulatory frameworks, promoting interoperability, prioritizing resources in asset classes with high potential for DLT adoption, and collaborating on technical solutions and payment systems.
The report emphasizes the importance of a technology-neutral and outcomes-based approach to regulation, aiming to balance financial stability and responsible innovation. It calls for regulatory frameworks that provide legal clarity and confidence for asset managers, investors, and issuers while fostering a level playing field for both new entrants and regulated financial institutions.
The report also emphasizes the need for industry participants and policymakers to work from a consistent baseline with globally harmonized definitions and risk management tools. It proposes the development of a global taxonomy for digital assets to facilitate this alignment.