Decentralised financial technologies: Report on financial stability, regulatory and governance implications
This report considers the financial stability, regulatory and governance implications of the use of decentralised financial technologies such as those involving distributed ledgers and online peer-to-peer, or user-matching, platforms.
The report focuses on technologies that may reduce or eliminate the need for intermediaries or centralised processes that have traditionally been involved in the provision of financial services. Such decentralisation generally takes one of three broad forms: the decentralisation of decision-making, risk-taking and/or record-keeping. These decentralised technologies could be applied in a number of areas, including cross-border payments and settlements, the tokenisation of securitises, trade finance and insurance and peer-to-peer lending.
The report notes that the application of decentralised financial technologies – and the more decentralised financial system to which they may give rise – could benefit financial stability in some ways. It may also lead to greater competition and diversity in the financial system and reduce the systemic importance of some existing entities. At the same time, the use of decentralised technologies may entail risks to financial stability. These include the emergence of concentrations in the ownership and operation of key infrastructure and technology, as well as a possible greater degree of procyclicality in decentralised risk-taking. New uncertainties concerning the determination of legal liability and consumer protection may also affect public trust in the financial system. Recovery and resolution of decentralised structures may be more difficult.
These issues may pose challenges for financial regulatory and supervisory frameworks. A more decentralised financial system may reinforce the importance of an activity-based approach to regulation, particularly where it delivers financial services that are difficult to link to specific entities and/or jurisdictions. Certain technologies may also challenge the technology-neutral approach to regulation taken by some authorities.
These concerns could continue to be the subject of further consideration by authorities. Regulators may also wish to engage in further dialogue with a wider group of stakeholders, including those in the technology sector that have had limited interaction with financial regulators to date. This should help avoid the emergence of unforeseen complications in the design of decentralised financial technologies at a later stage.
The report was delivered to G20 Finance Ministers and Central Bank Governors for their meeting in Fukuoka on 8-9 June.