The World Federation of Exchanges responds to ESMA DLT discussion paper

London, 5 September 2016 – The World Federation of Exchanges ("WFE"), which represents more than 200 market infrastructure providers including exchanges and CCPs, today published its response to the European Securities and Markets Authority's ("ESMA") Discussion Paper on Distributed Ledger Technology ("DLT").

Highlights of the response are as follows:

• The WFE supports the objective of a coordinated European approach to DLT. Still, due to the global, borderless nature of DLT, WFE also emphasises the need for global consistency based on international guidelines and principles.
• WFE encourages ESMA to work alongside international regulatory organisations and groupings, such as IOSCO and the G-20, to firstly develop a common approach to ensure a level playing field amongst current and potential DLT providers and participants; and secondly, to ensure any policy-formation in this area is complementary and does not encourage regulatory arbitrage.
• Given the evolving nature of DLT, it is important that regulators follow industry developments in the design and application of DLT to the financial system, as ESMA and other market authorities are proactively doing. This will be important and helpful in ensuring the market moves together, and that investor protection is in focus from the outset.
• The WFE encourages regulators to continue to collaborate with all parts of the industry to better understand the development of DLT, and to minimise unintended consequences from any subsequent policy formation. This will allow regulators to understand the technology, what the potential future industry models are - and its subsequent impact on financial markets – as well as how it can most effectively perform its regulatory function. Regulatory sandboxes have been a useful tool for the wider FinTech industry in various jurisdictions, so the WFE suggests these should be extended to DLT to ensure that appropriate collaboration and exchange of information occurs between industry and regulators.
• However, we also advocate that innovation in FinTech generally, and DLT specifically, should be primarily industry driven, and not be unnecessarily impeded by regulatory intervention. Regulators should also ensure any DLT technical or regulatory standards are consistent with other related rules, for example on cyber security and data protection.
• The WFE response was based upon empirical data obtained from its recent survey of FMIs on their use of, and perspectives on, DLT. The survey was undertaken in conjunction with the Affiliate Members Consultative Committee (AMCC) of the International Organisation of Securities Committees (IOSCO).

Nandini Sukumar, CEO, WFE, said: "As an industry, financial market infrastructures are studying DLT and its potential benefits to the capital markets. As the global industry association for exchanges, CCPs and CSDs, the WFE will seek to devote significant time and attention to forging consensus amongst its members on DLT-related issues, specifically formulating guidelines, codes of conducts and industry best practice as use cases and issues emerge. There is still much to come in this space."

Gavin Hill, Head of Regulatory Affairs, WFE, added: "Markets are dynamic and continue to innovate. Developments in this space should continue to be market-led and not unnecessarily hampered. However, it is important that stakeholders continue to engage, and as such, the WFE will endeavour to facilitate an open dialogue between regulators and its membership regarding the evolution of the technology, and the sharing of information and best practice."

Click here to read the WFE response in full.

You can also access the WFE's Financial Market Infrastructures & DLT survey report from 25 August 2016 here.

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