Blockchain for banks is a "long way off" says influential central banker

 
Jasper Jolly
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Bitcoin is the most prominent use of blockchain technology to date (Source: Getty)

Blockchain fintech has a “long way to go” to satisfy financial regulators, according to an influential board member of the European Central Bank (ECB).

Benoit Coeure said the underlying distributed ledger technology could pose new risks to the financial system, including legal and operational obstacles.

Coeure said: “Distributed technology could become a game-changer for payment, clearing and settlement activities if fintech companies and financial institutions can leverage the technology to meet demanding legal, operational and risk management requirements.”

Read more: How Blockchain technology will change the financial services industry

The Bank for International Settlements (BIS) said designers of blockchain technology for financial services will have to satisfy regulators they can meet stringent risk requirements if it is to fulfil promises of revolutionising banking and other parts of the economy.

The ECB will be one of the key regulators for the proponents of blockchain technology, along with other central banks such as the Bank of England and the US Federal Reserve.

The report from the BIS, often known as the central banks’ central bank, points to the uncertainty of how the distributed ledger would work in practice, as well as legal concerns in what believers say will be a central part of the global financial system.

The blockchain is “an evolving technology that has not yet been proven sufficiently robust for wide-scale implementation,” the report says.

Read more: Blockchain may have its 'big moment' in 2017

Blockchain has been heralded as one of the most promising areas of the burgeoning fintech industry. Transactions are recorded in ledgers that can be scattered across the world, in a “chain” which cannot be altered without changing every individual copy of the ledger.

The blockchain, another name for distributed ledger technology, was first designed for cryptocurrencies such as bitcoin. For the pioneering internet libertarianism blockchain had the advantage of making transactions essentially untraceable.

Read more: A Barclays boss thinks blockchain's a "new operating system for the planet"

However, the emergence of bitcoin quickly caught the eye of established players who saw another advantage: massive cost savings by cutting out the need for trusted third parties such as clearing houses.

Bank bosses are investing heavily in the technology, with one Barclays executive saying it would become the “operating system for the planet”. Fintech start-ups as well as established players are rushing to try to dominate what could become a central part of everyday life.

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