EU Watchdog: Distributed Ledgers Still Face Key Challenges

ESMA has released a new paper on blockchains and distributed ledgers as part of a fact-finding effort into the technology.

AccessTimeIconJun 2, 2016 at 3:05 p.m. UTC
Updated Sep 11, 2021 at 12:18 p.m. UTC

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:


Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.


CoinDesk - Unknown
Three Arrows Paper Trail Leads to Trading Desk Obscured Via Offshore Entities

As Three Arrows Capital collapsed under market pressure, its much-lesser known trading desk, TPS Capital, remained active, sources say. But a complex ownership structure might frustrate creditors' efforts to collect.

CoinDesk - Unknown
CoinDesk - Unknown
June Was Bitcoin’s Worst Month Ever

Plus, European crypto regulation comes into view.

CoinDesk - Unknown
CoinDesk - Unknown
What Traders Are Saying About Bitcoin's Biggest Monthly Loss in 11 Years

Poor macroeconomic sentiment, fears of inflation and systemic risks from the crypto market pushed the cryptocurrency below 2017’s highs.

CoinDesk - Unknown
CoinDesk - Unknown
Three Arrows Capital Files for Bankruptcy in New York Tied to British Virgin Islands Proceeding

A British Virgin Islands court ordered Three Arrows' BVI branch into liquidation earlier this week.

CoinDesk - Unknown