For all the innovation and the dizzying number of use cases that have accompanied the arrival of distributed ledger technology (DLT) in financial services, we need to be equally mindful of the foundational matters, such as governance and standards, which will shape its development and long-term success. We’ve been advocating for a robust governance model to support the development and implementation of DLT solutions since Day One, and this topic is covered in our newest white paper, Governing DLT Networks, Distributed Ledger Technology Governance for Private Permissioned Networks, where we share our views on the matter and hope to spark an industry-wide dialogue on this critical topic.
In the four years since DLT emerged as a “can’t miss” technology that would radically transform the global financial markets and post-trade processing, the idea that it would completely and radically change entire markets has given way to the realities of using a nascent technology to reshape highly complex and interconnected industries. Many of the early believers who saw DLT as way to conduct transactions without banks or financial institutions and predicted the demise of intermediaries within just a few years now recognize that market structure will evolve differently than initially imagined. While there’s no doubt that the technology still holds great potential to reimagine corporate and enterprise operations, its development and maturation is contingent on, among other things, establishing a strong, transparent and accountable governance model.
Over the past three years, DTCC has worked with our clients, regulators, policymakers and other stakeholders, including several technology partners, to test and build DLT applications, giving us experience and deeper insights into the application of traditional governance models to a DLT network. In our new white paper, which we co-authored with Accenture, we outline a DLT governance operating model to manage the risks and consequences of an evolving DLT landscape and to ensure the safety and soundness of the network for the benefit of all participants.
Conceptually, the DLT governance model reflects the established and time-tested principals of DTCC’s core mission and the expertise we’ve developed protecting the stability of the capital markets. Fundamentally, it’s our view that existing, regulated and trusted central authorities are well-positioned to play a leading role in introducing governance principles and uniform standards. In addition, we believe that establishing secure technology infrastructure and best practices to support distributed ledger implementations at this early stage of the innovation cycle – rather than allowing individual firms to put in place inefficient, hodgepodge processes – will help to safeguard the safety and soundness of the network for all participants.
This paper is the first step in starting a dialogue with the industry on this important topic. We look forward to a constructive debate where we can share ideas, challenge assumptions and partner with our colleagues across the industry to advance a governance model to guide the long-term development of DLT for financial services.
First published on the DTCC website here.