Mon. Jun 27th, 2022

    Editor’s Note: While written specifically with financial systems and professionals in mind, the following article may be informational and instructive for data and legal technology professionals considering the risks and rewards associated with blockchain models.

    Extract from an article by Kirk Phillips, CPA, CGMA

    Digital technology is transforming worldwide financial markets. Blockchain is part of this digital innovation.

    Financial institutions and tech companies have invested in blockchain or consortia-based blockchain projects to transform payments, clearing, and settlements (PCS), including how funds are transferred and how securities, commodities, and derivatives are cleared and settled. One consortium, for example, consists of large banks and other financial institutions collaborating on blockchain for financial markets. Individually, tech giants, such as IBM and Microsoft, and several big banks are working on projects within their own internal think tanks.

    Switching to blockchain could eliminate inefficient processes and unnecessary costs, but the digital transformation comes with risks that finance professionals will have to manage.

    PCS is a complex set of systems and institutions. US PCS systems process about 600 million transactions valued at about $12.6 trillion daily.

    Traditionally, businesses and consumers have relied on the central bank, clearinghouses, counterparties, and intermediaries to maintain custody and responsibility of all financial assets. As the 2008 worldwide financial meltdown showed, this comes with risks.

    The arrival of blockchain offers choices for managing crypto assets by shifting custody and responsibility traditionally managed by third parties all the way to an organisation itself. There’s also a spectrum in between, so the choice doesn’t have to be one extreme or the other.

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