DTCC Connection

From distributed ledger technology (DLT) to cloud computing to artificial intelligence, fintech innovations are transforming the post-trade ecosystem, including regulatory and policy objectives.

Mark Wetjen, Head of Global Public Policy for The Depository Trust & Clearing Corporation (DTCC), was among a panel of experts who discussed the regulatory impact of DLT on the derivatives industry during the 39th Annual Law & Compliance Conference on the Regulation of Futures, Derivatives and OTC Products (L&C 2017) in Washington, DC.

Presented by the FIA Law & Compliance Division, the event brought together more than 800 legal and compliance professionals to learn about the legal and regulatory issues impacting the derivatives industry and to identify best practices and practical considerations for developing effective compliance strategies.

Wetjen spoke with DTCC Connection about DTCC’s progress with DLT initiatives and how the company is working with regulators and other industry stakeholders to implement the technology and include it in its overall IT strategy.

How does DTCC balance the advancement of fintech innovations with achieving its mission to protect the integrity of the financial system?

We see our role as bringing disruptive technology to our clients in the most beneficial and transformative way possible while ensuring risk management. At the same time, we recognize that this must be done through a considered and careful process.

We’ve made significant strides and earned recognition globally for our work to integrate distributed ledger technology into the post-trade infrastructure. From the 2016 white paper, to the DTCC-hosted Symposiums, to the multitude of meetings and events we’ve participated in, DTCC is helping drive conversations among industry leaders and policymakers to discuss potential applications of new technologies, including DLT, robotics, artificial intelligence, cloud computing and machine learning.

Now that the hype around DLT has subsided, where is the industry in terms of DLT? DLT has garnered significant attention due to its potential to further mitigate risk and reduce costs in the processing of financial transactions, as well as its potential application in derivatives data processing. However, the use of DLT does not necessarily guarantee efficiencies and costs savings for all post-trade processing. For example, DTCC does not see near-term benefits of employing DLT for clearing and settlement of U.S. markets for equities and most fixed income. However, by integrating DLT in certain areas of the post-trade environment, where automation is limited or non-existent, the technology could provide benefits over existing processes, especially when coupled with industry-wide coordination.

How have you addressed regulatory challenges with DLT?

DTCC is no stranger to regulatory engagement and we work closely with global regulators and examiners on a regular basis. For successful, wide spread implementation of DLT, coordination among jurisdictions as well as interoperability is critical.

Ultimately, we need a common set of standards applicable to DLT that are used globally. If not, we run the risk of creating new siloed systems that cannot interact with each other. It is encouraging that regulators around the world are taking an interest in these issues, although they face a delicate balancing act.

On one hand, rules must facilitate and support tech¬nological advancement. But on the other hand, those goals should not overtake other important policy objectives, such as risk mitigation, investor protection, resiliency and transparency.

This is a difficult challenge, but one that is made easier through ongoing engagement and dialogue.

Are consortiums necessary in order for DLT to be successful in the financial services industry? Industry engagement, such as through consortiums, is an important aspect to the successful implementation of DLT. Policy makers can learn a great deal from these groups as well.

DTCC is one of 30 founding members of the Hyperledger Project, a consortium promoting open source development for stakeholders looking to advance blockchain technology, as well as the Enterprise Ethereum Working Group.

There are also trade associations and think tanks focused on DLT and DTCC is a member of two of them based in DC - Coin Center and Chamber of Digital Commerce.

What’s next for the financial services industry and DLT?

It’s impossible to predict, but a constructive exercise for all stakeholders in this space is to constantly challenge our assumptions. I also agree with what our CEO has said – not much may look different in 2-3 years, but things might look a lot different in 10 years.