Page 165 - ITU-T Focus Group Digital Financial Services – Technology, innovation and competition
P. 165
ITU-T Focus Group Digital Financial Services
Technology, Innovation and Competition
by insurance companies based on externally-derived micro-climate pattern data linked to the smart contract
that over a period, signals drought conditions.
8 Conclusions
• DLT – exemplified by blockchain technology – potentially ushers in a scalable, robust, and smart next
generation of applications for the registry and exchange of physical, virtual, tangible, and intangible
assets and information, shared across the world between actors that do not trust ‒ or even know ‒ one
another. The decentralized, transparent, immutable, and trustless nature of the DLTs may eliminate the
need for some intermediaries, and theoretically could reduce settlement time, cost, and fraud in financial
transactions.
• DLT is likely to be disruptive in terms of disintermediation of guarantors, authenticators, and trusted third
parties, and could replace current procedures that process, record, reconcile, and audit transactions
within a system where participants trade directly.
• For enterprises, compliance costs could be lowered through application of DLT-powered RegTech.
Moreover, the KYC process could be streamlined as identities can be stored on the blockchain establishing
trust and authenticity, and AML monitoring can be done in real-time based upon predefined conditions
via the use of self-executing smart contracts.
• DLT is also likely to be beneficial to a number of important components that relate to financial inclusion,
especially DFS and its adjacencies. On the horizon ‒ if and when DLTs are applied correctly ‒ are improved
ID management through provision of DLT-powered IDs and thus facilitation of remote DFS account
opening; seamless interoperability between DFS providers and banks without the need for providing
costly collateral; the ability to secure property records, and then for citizens to use their property as
collateral for loans, and similarly, the ability to source more readily available trade finance.
• For large-scale implementations of DLTs in financial processing, transaction speeds need to improve from
current levels.
• From a privacy perspective, there is thus a tension between shared control of data on a ledger, and
sharing of the data on a ledger.
• Undefined and un-harmonized regulatory environments and lack of a formal legal framework both on
the national/regional and international level need to be resolved by financial institutions, governments,
regulators, and other relevant participants for large scale implementation of DLT. Where possible,
functional (and not institutional) approaches to any changes to applicable laws and regulations should
be embraced. Regulatory (and legal) capacity to understand the technology, engage with industry, design
policy around DLTs, and properly regulate as needed is critical to its use for financial inclusion.
• It may not always be possible to fit the use of DLT into existing financial laws and regulations. As a
result, changes to laws or regulations, no-action relief, or interpretive guidance from regulators may be
necessary.
• Regulatory sandboxes that allow DLTs to be tested in markets are emerging and should be embraced
by regulators in a familiar form to that of the ‘test and learn’ regulatory philosophy of forbearance that
bootstrapped the emergence ‒ and global success ‒ of DFS transactional platforms.
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