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Technological Disruption: Implementing Distributed Ledger Technology in Financial Services

By Rob Palatnick, Managing Director & Chief Technology Architect, DTCC

Rob Palatnick, Managing Director & Chief Technology Architect, DTCC

When distributed ledger technology (DLT) was first introduced to the financial services industry, it was shrouded in widespread speculation and hype around its possibilities for disruption. Now, several years into the exploration phase, the industry has identified real use-cases, gathered some experience with the technology and made meaningful strides toward its successful implementation. As the technology has continued to evolve and mature, we are reaching an exciting phase where the ability to deliver upon DLT’s promise is becoming real, including at DTCC.

We have been exploring the technology for several years to determine where and how it could be best applied within our infrastructure. DTCC already plays a central role within the financial services industry, providing critical market infrastructure and, based on our experiences and feedback from our community of clients, we believe there is incredible value in being able to securely enable multiple parties to access the same ledgers, and all related transaction details in real time and while maintaining client privacy. In fact, we view this as a natural extension of our existing role. It is important to note though that our primary focus is not to simply change business processes for the sake of change, but to leverage the technology to provide increased transparency and efficiencies that extend beyond today’s capabilities. But before moving forward with any DLT implementation, there are certain considerations that must be addressed.

Chiefly, any applications of DLT within the financial markets must ensure that security, resiliency and compliance are not compromised. While there are built-in integrity, security, resiliency and privacy capabilities within DLT, there are already many legacy systems, networks and structures in place, meaning that the transition to a new platform may require complex integration, data migration and co-existence planning strategies. As a result, market participants will likely adopt the technology at a pace that aligns with their own capabilities and risk appetite, ensuring a successful migration while upholding the security, resiliency and compliance requirements that are in place today.

"As the technology has continued to evolve and mature, we are reaching an exciting phase where the ability to deliver upon DLT’s promise is becoming real"

Second, industry collaboration is necessary for interoperability and establishing best practices for DLT as implementation of the technology grows. It is already clear that many different solutions are being created across the industry, which ironically is re-creating the very disjointed system DLT aims to eliminate. Everyone has a shared goal of increased operational efficiency and reduced costs. To achieve this goal, all stakeholders – including but not limited to infrastructure providers, vendors and market participants - must cooperate to establish DLT standards, interoperability protocols and governance.

The evolution of any new technology, of course, takes time and DLT may not always be the right solution if its installation jeopardizes current risk management capabilities. But we have reached an exciting phase in the technology’s evolution when we’ll start to see the launch of real DLT solutions that could reshape the financial services industry for the better. In fact, DTCC is close to delivering upon one of the largest industry-wide implementations of DLT to date with the re-platforming of our Trade Information Warehouse, a trade repository for over-the-counter (OTC) credit derivatives, onto a DLT and cloud-based system. The service is currently targeted to go live early next year. The TIW project has allowed us to get much closer to the technology and the challenges of replacing an existing, mainframe system, enabling us to play a key role in the exploration and implementation of DLT. To ensure its continued success, we must all work together as use cases come to light, share learnings, develop standards and, above all, approach all implementations with the priority of minimizing risk. In doing so, the industry will be able to harness DLT’s full potential.

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