- The lack of regulation is hindering blockchain adoption in the finance sector, says David Treat, managing director at Accenture
- Treat says that regulatory approval is crucial to ensure fair market practices in securities markets.
- Blockchain companies such as Chainlink are making progress with trials, but regulation is needed for broader acceptance
The lack of regulation around blockchain is holding it back from adoption within the finance sector, according to David Treat, managing director of Accenture. Treat, who specializes in technology and capital markets, told the Financial Times that financial giants are interested in the audible nature of blockchains but that the lack of rules in place is holding them back from widespread adoption. Some firms are finding success with trials of blockchain solutions, but more regulation is needed if the promised blockchain revolution is to take place.
Regulations and Liquidity Are Core Issues
Treat told the Financial Times that the adoption of blockchain technology in traditional financial markets faces several hurdles, primarily driven by regulatory constraints and liquidity concerns. Regulatory approval is needed to ensure fair market practices, particularly in securities markets like bonds, commodities, and stocks, where significant investments by individual investors are already in place.
In the world of finance, Treat added, the most active markets tend to offer the best prices and lower transaction costs, which has hindered the widespread adoption of blockchain technology in sectors like the bond market. This discrepancy is particularly evident in markets where trillions of dollars are already traded through well-established networks.
Progress is Being Made
The immediate areas for blockchain growth lie in functions closely related to trading and cash markets, such as trade settlement and processing, with a key challenge being the connection of blockchain-recorded transactions with those recorded off the blockchain.
However, progress is being made in this direction, thanks to companies like Chainlink which uses oracles that link blockchains with external data, with its progress reflected in a recent tie-in with messaging service giant Swift; in August, the pair successfully tested a system enabling the transfer of value between different blockchains, bridging the gap between previously isolated networks.
Citi and JPMorgan Testing the Waters
Traditional financial institutions are dipping their toes into the blockchain waters, and with promising results. Citi, for example, is testing a blockchain project designed to allow institutional and corporate customers to convert cash into digital tokens, simplifying cross-border money transfers, particularly during traditional market closures. While Citi’s tokens are currently transferable only within the bank, efforts are underway to develop a framework for interbank and inter-institution token transfers in collaboration with regulators and financial industry stakeholders.
JPMorgan is another major player that is well known for its blockchain trials. In early October, the bank announced the initiation of transaction processing between customers using a blockchain-based settlement network, which represents the latest in the company’s years-long association with blockchain projects. These developments indicate a growing acceptance of blockchain technology within traditional banking.
Rather than being the tip of an iceberg, these examples represent the largest of very few successes to date. Despite the challenges, experts like Accenture’s Treat are optimistic about the adoption of blockchain technology in traditional financial markets, assuming that proper guidelines and security frameworks are in place. This vision for simplified blockchain-enabled networks is within reach, although it may take time to fully materialize.