Moody’s: Blockchain Won’t Disrupt Big Players – For Now

Blockchain, FinTech, Investing, News, Regulation | April 13, 2017 By:

Moody’s credit ratings service has issued a report stating that regulatory barriers and legacy business practices by large securities corporations make it unlikely they will be immediately disrupted by blockchain technology. That’s particularly true for US companies.

The report, titled “Credit Strategy — Blockchain Technology: Robust, Cost-effective Applications Key to Unlocking Blockchain’s Potential Credit Benefits,” can be viewed at the Moody’s website.

The firm’s economic analysis claimed that any disintermediation will be in the long-term, and most of the innovation will come from upstarts rather than the establishment. But blockchain will be a big part of post-trade activity, including settlements and reconcilation of ledgers, the report concluded.

Blockchain’s biggest value will be to reduce inefficiencies in the existing system of back office functions, which are currently handled by processing functionaries that don’t add value. Clearing houses, depositories and other back-office functions will be the first to feel blockchain’s effect. Moody’s reports that there are more than 120 ongoing projects on blockchain among companies it rates.

“There is significant enthusiasm for the potential of the technology, but there is still a limited track record of large-scale blockchain implementation in a regulated environment, and many hurdles lie ahead before we see widespread applications,” said Robard Williams, Senior Vice President at Moody’s.

However, Moody’s believes that the efficiency benefits in terms of speed, cost, security and reliability, as well as the auditability of processes, will continue to drive development and investments. Longer-term, credit implications for rated issuers will depend on whether the positives in terms of more streamlined processes and reduced costs outweigh the negatives in terms of the potential to create competitive pressure from incumbents and new entrants that improve processes by leveraging blockchain technology.