Distributed Ledger Technology (DLT) has emerged as a major game-changer in the financial services industry. But what is it and how does it work? Imagine a shared digital notebook accessible to all players in the financial system—banks, regulators, businesses, and individuals. In this notebook, transactions are recorded transparently, validated collectively, and alterations are impossible without consensus. This is essentially what DLT is all about – leveraging advancements in digital record-keeping technology to build a decentralised, transparent, and immutable financial system.
Unlike traditional finance, where a central authority oversees transactions on the underlying system, DLT relies on a network of participants working collectively under common governing rules embedded in the technology. This fosters trust, accelerates transaction speeds, and lowers costs. DLT underpins popular cryptocurrencies like Bitcoin, but its application and potential extend far beyond cryptocurrencies and blockchain.
“DLT has the potential to fundamentally reshape the future of money and finance in a powerful and positive way,” asserts Kate Karimson, Chief Commercial Officer of R3, an enterprise technology firm specialising in DLT solutions for regulated markets. In an exclusive interview with Disruption Banking, Karimson discussed how DLT is firmly taking root in traditional finance as its benefits get more widely known and understood by central banks and regulators.
Central Banks Leading The Charge
She highlighted Central Bank Digital Currencies (CBDCs) as an example of how DLT can be used in practice. These digital counterparts to traditional fiat money are gaining traction, with numerous countries actively exploring their potential. Over 130 countries—representing 98% of global GDP—are diving into CBDC research and development. As of April last year, more than 40 countries sought assistance from the IMF for CBDC capacity building. Nigeria and the Bahamas have already issued their digital currencies and several other nations are poised to fully launch CBDCs in the near future.
“From our perspective we are seeing a lot of people now realising that DLT is here to stay. The power of CBDCs is being shown and brought to life in multiple jurisdictions.” Central banks and regulators, she argues, are supportive of the new technology and acknowledge the broader benefits for the financial ecosystem.
“Regulators are listening and want to enable markets to progress,” she shared, adding that a growing number of central banks around the world are turning to firms like R3 to deploy the technology underpinning their CBDCs.
“Notable digital currency initiatives are currently being built on Corda,” revealed Karimson. Corda is R3’s proprietary DLT specifically designed for institutions operating in highly regulated environments, making it an ideal foundational technology for central banks to issue and distribute CBDCs.
She offered the example of the firm’s collaboration with the Central Bank of the UAE (CBUAE), which in April announced that it had embarked on a significant initiative—the Central Bank Digital Currency (CBDC) Implementation Strategy. Collaborating with R3, G42 Cloud, and Clifford Chance, the CBUAE aims to revolutionize its financial infrastructure, with R3 serving as the technology provider.
R3 has also partnered with Euroclear, one of the world’s largest financial market infrastructure providers, to issue its first digital bond. This transaction was facilitated by R3’s platform, Corda. “We’re working on many more projects to enable markets progress in terms of digitisation,” she reveals.
Interoperability Needs Standardisation
For DLT to become more deeply embedded in the financial system – and importantly, for its benefits to extend beyond financial institutions and reach consumers and retail investors – interoperability and integration need to be prioritised, Karimson shared. Standardisation plays a key role in achieving driving interoperability and integration and “is absolutely essential” for the industry to grow further, she explained.
There must be common and consistent rules for how digital assets are issued, traded, and managed. Tokenisation – the process of representing real-world assets like real estate, stocks, art and more as digital tokens through DLT – cannot take off on a global scale without standardisation. “Whether it’s interoperability between DLT networks or integration between DLTs and traditional systems, clear rules ensure seamless interaction and enhance trust,” she said.
Collaboration between different players in the DLT and financial services ecosystem is therefore essential and will form the basis of strong standards that foster growth and innovation. “We all need to come together as a community and really agree what do you mean by this; what does that mean for you; how do we define and categorise it?”
“All parts of the ecosystem need to be involved.”
Giving an example of how collaboration can benefit the ecosystem, including retail investors, Karimson noted that R3 has joined forces with Quant to serve as the technology providers for the UK’s Regulated Liability Network (RLN). This initiative, led by UK Finance and supported by EY, aims to create a unified platform for various financial transactions using both tokenised and traditional commercial bank deposits. The project involves major global banks and institutions, including Barclays, Citi, HSBC, Lloyds Banking Group, Mastercard, NatWest, Nationwide, Santander, Standard Chartered, Virgin Money, and Visa.
“The RLN initiative is bringing the industry together to work towards a shared goal – harnessing the benefits of tokenised finance in a manner that is regulated, orderly, and interoperable,” she said, adding that potential use cases include providing consumers access to smart loans based on tokenised deposits. “Smart contracts embedded with rules can ensure loaned funds are used for the specified purposes,” she elaborated.
Education Vital Amid Talent Boom
Karimson, however, noted that for the industry to come together, there was a need to invest more heavily in education about DLT and its evolving role in finance. “DLT is a fast-growing space and there’s lots of education which needs to happen. We need to make sure that we are getting people up to speed,” she said, disclosing that R3 utilises workshops, working groups, webinars, and other tools to promote knowledge sharing and collaboration in the industry.
She is optimistic that DLT is headed in the right direction in terms of attracting the best talent in finance. This, she argued, will be crucial in deepening different players’ understanding of this powerful technology and arriving at standards that support transformation at scale. “DLT is attracting brilliant minds. The younger generations are particularly being drawn to it,” she shared.
But even for finance veterans, DLT has its own unique pull. DLT is re-writing the future of money; many finance professionals want to be a part of this future, she said. “In the last couple of years, we’ve seen a significant positive shift in how finance professionals view DLT. We shouldn’t think of it as a different world from finance, but we should think about it as a new powerful technology which now needs to be applied to a different problem set.”
Karimson believes that, like with many sectors, DLT will be reshaped in a major way by artificial intelligence. “We’re hugely interested in AI and view it as a complementary tool with great power,” she said. However, she cautioned that AI deployment in DLT required extensive due diligence to understand how to best use it as a force for good.
Author: Acutel
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