Page 162 - ITU-T Focus Group Digital Financial Services – Technology, innovation and competition

ITU-T Focus Group Digital Financial Services
Technology, Innovation and Competition

6.3 Legal and regulatory issues with the use of DLTs

DLT and the possibilities of its use in multiple economic sectors – from property registration, to remittances,
trade finance, identity management, to share trading and certificates ‒ pose bigger sets of legal and regulatory
challenges.

At a regulatory level, some of the questions that have been raised include how to apply consumer protection
127
measures, how to apply AML measures, and use of identities registered in one jurisdiction in others.
At a legal level, the issues relate to how specific DLTs would interact with current laws and regulations governing
(these) specific sectors, and common law rules (where used) that are needed where regulations are silent.
128
That said, the legal issues that would appear to be most pertinent to DLTs include: The legality of smart
contracts; place of contracting using a blockchain; chain of legal liabilities; and time of contracting using a
blockchain.

All these open (and evolving) legal issues suggest that embracing of DLT for mainstream commercial and public
use requires both doctrinal and legislative shifts.

7 Application of blockchain/DLT technology to financial inclusion

7.1 Overview

Currently, the foundational layer and infrastructure necessary to support a rich ecosystem of DLT-based
applications and services is being established. The robustness of the technology has piqued the interest of
financial institutions, regulators, central banks, and governments who are now exploring the possibilities of
using DLTs to streamline a plethora of different public services.

Billions of dollars are being spent on applications of DLTs, from new national ID systems where a person can
be provided with a unique ID that they can share; to tracking of assets; to settlement of financial transactions;
to digital rights management; and to the development of cryptocurrencies such as Bitcoin.
129
Trials using DLTs for international settlement have shown great promise and may find application to remittances,
S&C, cross-border currency exchanges, and interbank transfers. A survey by Accenture showed that the current
state of financial institution interest or adoption of DLTs is in the POC phase. 130

7.2 C&S

Financial services firms can minimize operational complexity with the use of DLTs. Systems that rely on trusted
intermediaries to support and/or guarantee the authenticity of a transaction today could instead be efficiently
conducted using DLTs.
131
Currently, C&S between parties may take up to two to three days to achieve, leading to credit and liquidity risks.
C&S time can be reduced to minutes with DLTs. Private, permissioned blockchains between banks – such as

127 ibid
128 A simple example would relate to which laws and regulations would be applicable when placing property registration on a public
blockchain: conventional approach would be through property registration laws, and laws relating to electronic records and
evidence.
129 Needham, C (2015) The Blockchain Report: Welcome to the Internet of Value, available at https:// goo. gl/ fje2p3 .
130 Accenture (2016) ibid
131 According to Santander Bank, blockchain could reduce banks’ infrastructure costs attributable to cross-border payments, securi-
ties trading, and regulatory compliance by between US$15-20 billion per annum by 2022. CoinDesk (2016) Santander: Blockchain
Tech Can Save Banks $20 Billion a Year, available at https:// goo. gl/ QHWN7Y

142