Global Custodian Securities@Sibos 2019 - Page 17

[ S I B O S you need to organise around roles, and controls and governance systems and ensure the same type of safe and efficient environment.” In a world where securities and other assets become tokenised, some have argued that an intermediary will still need to issue them and create rules. Natural remit Verbeke said that CSDs are aware that some duties will fall to them and others won’t. “Some of those roles will fall into our natural infrastruc- ture and we have made our mind up that other stuff is out of our league,” he added. “Our natural remit could be anything around safety, notary role, when you want someone to say ‘this is yours’.” A new white paper from Deutsche Bank, released at Sibos, highlighted that Europe’s data protection laws and the incoming CSD Regulation (CSDR) might also have a significant impact on the implementation of DLT in the post-trade area. “CSDR mandates that the ultimate record of ownership of securities is to be main- tained by a CSD. Only allowing CSDs to issue or process securities trans- actions clearing restricts the use of blockchain for this purpose,” Polina Evstifeeva, head of regulatory strate- gy, GTB chief digital office, Deutsche Bank told Securities@Sibos. The core value of blockchain is that it is decentralised and transparent, but the white paper suggests these values could also conflict with data protection laws, which focus on the importance of allowing personal data to be removed or edited. “Different jurisdictions define data, its use and the necessary means of protection in markedly different ways,” added Evstifeeva. “In practice, PA N E L S | M A R K E T I N F R A S T R U C T U R E ] this restricts the free flow of data across borders and makes it chal- lenging for one single solution to be employed in all markets.” The issue of determining what jurisdiction and law should apply is a challenging one when different blockchain nodes may be in differ- ent jurisdictions. “This may result in different blockchain ecosystems being created or, perhaps worse, we may end up with multiple copies of shared ledgers operating on different technology platforms with differ- ent database environments, leading to time-consuming and expensive reconciliation – exactly what the technology is looking to circumvent,” she noted. However, the white paper does not rule out the implementation of block- chain by CSDs, suggesting the tech- nology can be implemented through a hybrid model in which the CSD can either operate a blockchain platform itself to perform the book entry role, or it can continue to perform this role off-chain, with the third-party blockchain platform accessing those records held by the CSD via an API (application programme interface). CSDs have so far eyed blockchain technology for proxy voting and cor- porate actions as a starting point, but have yet to expand adoption of DLT for services such as securities issuing and settlement. Evstifeeva explains cross-bor- der regulation and industry-wide standards on blockchain will help encourage CSDs to utilise the full benefits of the technology. “As with all regulation pertaining to technology, we stress the need for technology-neutrality – regulating the applications and outcomes of blockchain, rather than the technolo- gy itself,” she said. January 2019 SecuritiesAtSibos.com 17