Distributed ledger technology could save TradFi $100 billion a year: lobby group

According to a new report from the Global Financial Markets Association (GFMA), about $100 billion a year or more could be saved if distributed ledger technology (DLT) were used in traditional markets.

In a May 16 report, the traditional finance industry lobby group, along with international consulting firm Boston Consulting Group (BCG) and others, asked both regulators and traditional financial institutions to take a more serious look at the benefits of the technology.

A distributed ledger is an umbrella term for a system that records transactions and digital information. A blockchain is a specific type of distributed ledger.

“Distributed ledger technology holds promise for driving growth and innovation,” said Adam Farkas, Chief Executive of GFMA. “This potential should not be ignored or banned where regulatory oversight and resilience measures already exist.”

According to the report, using distributed ledgers to streamline collateral processes in derivatives and credit markets could generate additional savings of $100 billion.

In addition, using smart contracts to automate and support clearing and settlement processes can reduce overhead costs by $20 billion per year.

Overall, the systems that would benefit most from implementing DLT at some level were clearing and settlement, closely followed by custody and asset management.

According to BCG analysis, primary markets and secondary trading were less likely to be severely impacted by the technology, but tokenization in these markets could provide better risk mitigation and deeper liquidity.

DLT is starting to see an increased level of adoption internationally. On March 23, European securities settlement firm Euroclear – which claims to have more than $40.9 trillion (37.6 trillion euros) in assets under custody – announced that it would like to integrate DLT into its settlement process.

Related: China launches national blockchain center to train half a million specialists

However, there is still a lot of room for improvement when it comes to implementing DLT in pre-existing financial systems.

Last November, the Australian Securities Exchange abandoned plans to update its 25-year-old clearing and settlement system with DLT, leaving a $170 million hole in the books.

The GMFA report comes just two months after investment bank Citi claimed the global market for blockchain-based tokenized assets could reach as much as $5 trillion by 2030.

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