Finra highlights possibilities of blockchain tech for the securities industry
Financial Industry Regulatory Authority (Finra), a non-governmental organisation that regulates member brokerage firms and exchange markets in the US, has published an extensive report, evaluating the implications of blockchain for the securities industry.
While it does not propose any new regulations, it highlights operational and regulatory areas that broker-dealers may need to consider as they explore the possibilities offered by distributed ledger technology (DLT).
The report explains the fundamentals of DLT and quickly moves on to discuss how different market participants within the securities industry can make use of the technology. It also covers examples of DLT-based shared utilities that market participants are exploring for certain common and repetitive functions.
Although this doesn’t mean the Finra has put its seal of approval on any particular solution as yet, it goes to show that the body is approaching DLT with an open mind. The report even suggests that the authority seems reasonably confident about the technology, its capabilities, and its potential to possibly revolutionise the market.
Finra believes that using DLT would improve market efficiencies and promote transparency, but might alter the roles of intermediaries in the future, and require market participants to re-assess operational risks.
Next, the report provides a detailed note on the various factors that firms need to keep in mind when they consider exploring how DLT could benefit them. The list is robust. Not only does it consider the governance, operational structure, and network security aspects associated with using the technology, but also highlights several regulatory considerations.
It references the various rules and statutes that impact firms in the securities industry when they embark on a journey to transform their business using DLT. However, it is important to note that the report maintains a positive voice throughout. It highlights implications and and re-iterates the regulations, only to caution firms against neglect of statutory obligations and to ensure they can focus on revitalising their core business with this new technology.
By Soumik Roy, editorial contributor to Banking Technology