Blockchain unlikely to solve settlement issues, says expert

Industry expert says settlement should not be the first problem solved with blockchain.

Implementing blockchain technology for settlement transactions will not be as easy as many believe, according to an industry expert.

Speaking at London’s FinTech week, Simon Taylor, former Blockchain R&D VP and co-founder of Blockchain 11:FS suggested that in spite of blockchain’s origins lying in settlement, the technology should be focused elsewhere.

“People look at blockchain technology and assume that because bitcoin did settlement, blockchain should be used for settlement when settlement is one of the hardest things to solve using blockchain,” he said.

“Think about what settlement means, its finality of settlement that is you have now got the money through all the intermediaries and everybody has been notified and everything has been cleared.

“In capital markets, typically you don’t 100% pre fund a trade as you’re performing different kinds of operation, so settlement is a problem but not the first problem we should solve.”

Taylor also suggested that a potential blockchain revolution had failed to materialise and suggested that reconciliation is where blockchain can come into its own.

“There was a time when bitcoin came along and everybody said that banks are going to disappear, and everybody will be their own bank using bitcoin. As time as moved on people have seen that that won’t happen.”

“Where a blockchain really comes into its own is where it can replace certain aspects of functionality. In a situation where there are many complex actors performing simple tasks with each other but that can’t have a centralised model do it all for them is where blockchain can succeed.”

“It’s basically a revolution in reconciliation.”

Blockchain technology has been hailed by custodians as being the future of the industry with potential to streamline processes such as settlement, clearing and corporate actions.

A report issued by JP Morgan and Oliver Wyman last week suggested that the asset management community must embrace blockchain technology or face falling behind with developments.

It has also been questioned by regulatory bodies with US regulators warning that distributed ledger technology could pose “risks and uncertainties” to the financial stability of capital markets.