Deutsche Bank is exploring the use of the blockchain for a variety of potential applications, according to a recent letter from the German megabank.
The bank was one of a number of respondents to a call for evidence by the European Securities and Markets Authority, which is currently establishing how it will regulate digital currencies. The EU securities watchdog issued a request for feedback in April. The bank declined to comment when reached.
According to the letter, attributed to global head of regulatory policy Daniel Trinder, Deutsche Bank sees the blockchain as “an area where we have particular interest and expertise”, adding that it is not currently engaged in digital currency trading or issuance. The bank also pointed to a roadmap it unveiled earlier this year in which it outlined plans to explore new financial technologies.
Deutsche Bank cited the following areas of potential blockchain application in its letter:
- Fiat currency payment and settlement
- Securities issuance and transfer – creation of unique identifiers, transaction tracking and asset segregation
- Securities clearing and settlement – through delivery of more efficient post trade processing
- Securities Asset Servicing – through automation of dividend/interest payments and corporate actions processing
- Enforcing derivatives contract and improving derivatives clearing through smart contracts
- Asset registries – without the need for a central administrative authority
- Know your Customer and Anti-Money Laundering registries and surveillance
- Creating transparency – and facilitating differentiated customer and regulatory reporting
The bank added:
“In addition to these specific applications, the introduction of distributed ledger technology has the potential to allow for more fundamental changes to pre and post trade work flows within banks with additional efficiency benefits flowing from that.”
Deutsche Bank noted that, in its opinion, the exploration of the technology remains in its early stage, particularly at institutional level.
“Which of these potential applications will turn out to be scalable and sustainable remains to be seen,” it wrote.
On regulation
Deutsche Bank recommended in the letter that regulators seek a balance between compliance and innovation, joining a chorus of organizations, institutions and individuals who have long called for financial tech experimentation to be supported rather than stifled by governments.
Specifically, the bank asked for regulators to “adapt rules to keep pace with innovation and avoid creating barriers to market entry through regulation”.
The bank wrote:
“It is important that in seeking to mitigate potential risks arising from new applications of the blockchain / distributed ledger technology, there is a proportionate approach taken and that an appropriate balance is struck between managing emerging risks and providing predictability for investment and space for continued innovation.”
Deutsche Bank also applauded the work of the Federal Reserve Bank of New York, the European Banking Authority and the UK Treasury in investigating digital currencies. The bank also voiced support for a proposal by the Financial Action Task Force to oversee exchange activity in Europe.
Blockchain work growing
Deutsche Bank noted in its letter that the blockchain “has the potential to create new industry opportunities and disrupt existing technologies and processes”.
Beyond finance, it sees the use of the blockchain growing on the institutional level, citing the work of government bodies in the area of the blockchain.
Most notably, Deutsche Bank wrote that “Estonia, which reports the lowest rate of credit card fraud in the Euro zone, secures much of its banking infrastructure with a blockchain.”
A request for comment submitted to the country’s central bank was not returned by press time.
The bank also cited work by the Monetary Authority of Singapore and the Honduran government as other examples.
The full letter from Deutsche Bank can be found below:
H/t Financial News
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