Jon Cunliffe, Deputy Governor of the Bank of England, said on Wednesday, September 28, that using the blockchain technology that is the foundation of crypto assets to enable rapid trading and settlement across all financial markets is not desired given the issues that it would entail.
According to Cunliffe, it is important to make sure that trading and settlement innovations are as robust as the current system is in the eyes of regulators, Reuters reported on September 28.
He added that cash and securities on hand at the moment of a trade’s execution are necessary for instant settlement. It was unclear how blockchain-based platforms and current technology would operate together.
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Cunliffe told a conference held by financial industry body AFME:
“There is simply no time to identify or rectify errors before they are actioned. In short, we may not want wholly instantaneous trading and settlement in all markets.”
The current setup
Currently, stock and bond transactions are settled two business days after the transaction. This results in risky exposures and the possibility of significant market movements in the interim, which banks are required to cover with cash for margin and capital.
As a result, the United States has established March 2024 as the target date for reducing this to one working day, and they are applying pressure on Europe to do the same.
Meanwhile, pilot programs are currently in place to test the use of distributed ledger technology or blockchain for quick trading and settlement of deals, with the goal of reducing costs and risks.
It’s also worth mentioning that previously, Cunliffe had warned that the rapid growth of cryptocurrencies could pose a serious threat to the established financial system, while the Bank of England also dismissed using the digital pound like cash in July.
