The European Securities and Markets Authority (ESMA), a securities trade watchdog based in the EU, has released a new discussion paper on blockchains and distributed ledgers as part of a fact-finding effort aimed at developing policy positions on the technologies.

The paper, published today, comes more than a year after the organization first issued a call for information on the technology. ESMA has also hosted its own events, as well as participated in others focused on the use of blockchain applications in finance.

ESMA’s fact-finding mission itself grew out of an effort to investigate digital currency investments in the EU, which in the newest report ESMA said “remained marginal” overall.

The agency stressed throughout its new report that it had not developed a concrete opinion on the technology, framing the release as one that constitutes a “preliminary analysis” of blockchain applications to the securities sector. Each section is built out with a series of questions to industry stakeholders as part of the agency’s comment-seeking process.

The report states:

“ESMA appreciates that the [distributed ledger technology] may have different applications and impacts on financial activities, market participants and market infrastructures, depending on a variety of elements, including its capacity to address a number of technical, governance, legal and regulatory issues. It is too early at this stage to form a definite opinion on whether the DLT will be able to address these issues in an efficient way.”

Overall, the report echoes other assessments, including those of its own executive director, on the technology’s potential in finance.

It posits that the technology could be leveraged to boost systemic efficiency, reduce intermediation in the clearing and settlement process and improve transparency in trade data recordkeeping. At the same time, the ESMA report raises questions about scaling, governance and cybersecurity issues.

“ESMA believes that the DLT will need to overcome a number of possible challenges and shortcomings before its benefits can be reaped,” the report’s authors write. “Some of these challenges are related to the technology itself.”

Notably, the report explores which regulatory frameworks within the EU that could apply to market applications of blockchain tech should it see wider adoption. These include the Central Securities Depositories Regulation (CSDR), the European Market Infrastructure Regulation (EMIR) and the Settlement Finality Directive (SFD).

The full ESMA report can be found below:

ESMA Discussion Paper

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