A new report by a global industry association for securities exchanges has focused on blockchain adoption issues among its members.

A response to a discussion paper on distributed ledger technology (DLT) proposed by the U.K. securities watchdog, the Financial Conduct Authority, the World Federation of Exchanges (WFE) paper cites jurisdictional issues as the biggest inherent challenge for the wider adoption of what are, by nature, decentralized, cross-border systems.

While this is not the first time WFE has commented on the use of DLT by security exchanges, it is now focusing on regulatory areas that “need to be addressed or clarified” to enable use cases of interest to its members.

The report noted:

“It is important to have certainty regarding the legal status of digitized assets as a means of transferring and granting security over interests in such assets, as well as treatment in insolvency, and applicability of insolvency protection.”

According to the association, its members include worldwide security exchanges from developed and emerging markets, such as Nasdaq and the Shanghai Stock Exchange.

Call for standards

The response also pointed to the lack of a standard legal status for cryptocurrencies among central banks as a challenge for cross-border transactions among exchanges.

The paper argued, for example, that it remains unclear just how transactions made on a digital ledger infrastructure would be treated from a legal perspective.

“In fully decentralized DLT schemes, it is not clear who would define the relevant finality concepts under EU law (i.e. what constitutes a ‘transfer order,’ moment of entry, moment of settlement, law governing the ‘system,’ etc.),” the paper continued.

The WFE also warned members of the potential risks of letting non-financial third parties to take the lead on DLT solution development.

“The lack of formal oversight whilst DLT solutions are being developed, may result in negative consequences for investor protection and orderly markets,” it concluded.

Last year, it was reported that 21 members surveyed by the WFE said they were actively exploring applications of DLT, and several indicated they had secured budgets for research and development in the field.

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