Financial institutions will increasingly adopt blockchain and distributed ledger technology in the post-trade space over the next three to five years, according to a survey of member firms in the Post-Trade Distributed Ledger Group.
Almost half of firms surveyed at the end of last year said they expect the industry will adopt blockchain technology for post-trade processes in the next three to five years, while nearly 30% expect adoption to occur sooner. One in five don’t expect to adopt blockchain for over five years.
(Related: 5 Predictions for Advisor Fintech in 2017)
PTDL is a group of about 40 global financial institutions that aim to collaborate on distributed-ledger best practices. Its organizing committee includes representatives from CME Group, Euroclear, HSBC, London Stock Exchange Group and State Street.
Fifty-four percent of respondents said that in their own firms, blockchain’s strategic importance was high or very high. Just 7% said it was a low priority.
The survey asked about the specific benefits and challenges of implementing blockchain. Cost savings were far and away the top benefit, with 81% of respondents siting reduced costs in operations as the main benefit. Two-thirds cited increased efficiencies as a benefit, and 43% pointed to transparency.
The main obstacle to firms that want to implement blockchain is the reluctance of other firms to do the same. Almost 80% of firms said low adoption in the industry is the most significant barrier to wider use of the technology.
“The survey shows that blockchain could become mainstream in just a couple of years, with benefits such as better transparency, shorter settlement cycles and cost savings clearly identified by our members,” Jörn Tobias, managing director at State Street and PTDL Group representative, said in a statement. “The big barrier to growth, however, is seen as caution: fears over adoption and hesitation about embracing what remains cutting-edge technology.”
Other barriers identified in the survey include regulation, a clear business need for blockchain and concerns about confidentiality. Lack of standardization was also cited as a concern by 49% of respondents.
Tobias noted that a “core focus” of PTDL Group is to engage with financial services and technology firms to “catalyse adoption across the world for the benefit of all parties the financial post-trade area.”
The Financial Industry Regulatory Authority is currently accepting comments from the public on a paper it published in January that examined the impact of blockchain on the securities industry.
While there is debate over the speed and magnitude of disruption caused by blockchain, “most agree that the technology has the potential to bring additional efficiencies and increased transparency to the industry,” FINRA wrote in the paper.
It referred to consortiums like R3 and HyperLedger that are working to create distributed-ledger frameworks. FINRA suggested blockchain could be adopted on a limited scale “in a matter of months,” while industrywide adoption may not occur for “several years.”
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