European Securities and Market Authority takes ‘wait and see’ regulatory approach to blockchain

Regulation | January 26, 2017 By:

The European Securities and Market Authority (ESMA) has stated blockchain technology has not reached a point where regulatory action is needed, so has taken a ‘wait and see’ approach towards it.

Patrick Armstrong, senior risk analysis officer, innovation and products team at Esma, explained the approach should not be considered as passive, but instead “one in which we actively try to learn more about the innovation.”

Armstrong said Esma began examining distributed ledger technology in early 2013 when bitcoin became a widely known alternative payment service. By 2015, the regulator had set up a DLT Task Force made up of national regulators, and representatives of the European Commission and the European Central Bank.

In June last year, Esma published a discussion paper to collect feedback from the market on the potential uses, benefits and risks of DLT applied to securities markets, with a particular focus on post-trade activities.

Looking at blockchain’s application to the asset management industry, ESMA’s view is that is could bring a number of benefits, not exclusively to post-trade.

Although, a number of challenges need to be addressed before these benefits materialise, Armstrong told delegates.

“ESMA realises that while distributed ledger technology (DLT) may at once reduce or mitigate certain risks, it may also create or exacerbate others,” Armstrong said.