DTCC Connection

Jun 08, 2016 • DTCC Connection

DTCC’s Wetjen Addresses Emerging FinTech Solutions

By Roland Kielman

Mark Wetjen, DTCC Managing Director and Head of Global Public Policy
Mark Wetjen, DTCC Managing Director and Head of Global Public Policy

How technology is changing the face of finance worldwide was the focus of a recent three-day conference in Washington D.C., co-sponsored by the International Monetary Fund (IMF), the World Bank Group and the Board of Governors of the Federal Reserve System.

“Technology in Flux” was the theme of the 16th Annual International Conference of Policy Challenges for the Financial Sector. The conference attracted leaders in finance, financial technology and policy makers from around the globe. The conference also featured a number of notable speakers, including Janet Yellen, Chair, Board of Governors of the Federal Reserve, who spoke on the first day of the program, June 1.

Mark Wetjen, Managing Director and Head of Global Public Policy at The Depository Trust & Clearing Corporation (DTCC), highlighted the promise of fintech during his luncheon speech. New technology has the potential not only to reduce costs and increase efficiencies for the financial industry, but fintech also presents the opportunity to enhance transparency.

RELATED: Read Wetjen’s speech

Sessions covered a range of topics, besides regulation and policy. One panel looked at how both Wall Street and Silicon Valley are creating new technology models to enhance efficiency, while another focused solely on blockchain and distributed ledger technology (DLT) – an emerging technology that could re-engineer and streamline the post-trade process. DTCC has been at the forefront as an innovator in DL and is testing several use cases to implement the technology.

RELATED: DTCC Drives Advancement of Distributed Ledgers

The conference comes at a time when policymakers and the industry continue to examine fintech for possible solutions to address the many challenges facing financial firms today. Firms in finance face difficulty on the revenue side with margin pressure. Additionally, there is uncertainty about compliance costs to meet future regulatory requirements. These developments only underscore the importance of the cost savings that new technologies could provide.

“Clearly, technology is evolving at a rapid pace,” Wetjen said. “Innovation is creating disruption. Business models are being re-examined. Policymakers will have no choice but to consider and possibly decide on the impacts of new technologies as they implicate regulatory frameworks.”

Wetjen noted that fintech solutions, such as cloud computing and DLT, may have important implications for market transparency. In particular, firms are looking for new ways to cut costs by outsourcing non-differentiating back-office processes.

“If firms leverage new technologies to lower costs, regulators could hopefully gain a deeper and more complete picture of the marketplace than at present,” Wetjen explained. “One of the hallmarks of DLT, for example, is the transparency it affords to those with access to one of its network nodes. With this technology, regardless of who manages back-office processing, the transparency advantages are immediately achievable, potentially resulting in elegant resolution to some of the transparency issues faced by firms and regulators alike.”

As an example, Wetjen pointed to DTCC’s recent work on a DLT proof of concept related to credit default swaps, which included a node for regulators.

His remarks also highlighted the role of financial market infrastructure and fintech in fostering economic integration. Wetjen pointed to a recent market development, as an example, that saw the first Chinese Renminbi (RMB) certificate of deposit settled in the United States. DTCC provided services to settle the instrument through its central securities depository, DTC.

To date, demand for the new instrument – issued by the Industrial and Commercial Bank of China – has been modest. But Wetjen suggested that innovative technologies could play a role in helping respond to demand for RMB instruments or other efforts to foster economic integration.

“The decisions related to how and when a market infrastructure will provide the necessary operational functionality could depend, at least in part, on how fast and quickly new technologies can be leveraged for that purpose,” he explained. “For example, innovative settlement and clearing technologies and systems could reduce the operational complexities inherent in clearing and settling different products, allowing services to be offered more cheaply and efficiently. This, in turn, will impact how quickly global economic integration among different parties occurs.”

In closing, Wetjen urged policymakers to accelerate and deepen their understanding of developments in fin-tech.

“By developing a deep reservoir of knowledge, you will be in a position to hasten the deployment of that technology through efficient analysis and approval of its use where required, and thereby hasten the goals of economic integration and transparency that we all share.”

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