Financial Services Bill Amendments: Distributed Ledger Technologies

On day six of committee stage of the Financial Services Bill in the House of Lords I am putting forward several amendments – broadly under the heading of fintech – with two specifically designed to encourage the development of use cases for distributed ledger technologies (DLT).

Following our departure from the EU it seems an ideal time to review all of our financial services regulations and indeed the rules of our financial services regulators. I put this broad point on day one of the committee stage. There are, however, a number of specific instances worthy of their own consideration – particularly where new technologies, such as DLT, could be experimented with to establish their potential positive impact.

Two examples are the current transaction reporting requirements under both the Markets in Financial Instruments Directive (MiFID) and the European Market Infrastructure Regulation (EMIR). In my amendment, I am asking the Secretary of State to report to Parliament on whether the operational burdens of these transaction reporting requirements may be alleviated through the development of ‘blockchain-based’ tools. Full text of the proposed amendment is:

Insert the following new Clause—
“Transaction reporting requirements under MiFID and EMIR The Secretary of State must, within 3 months of the date of the passing of this Act, report to Parliament on—
(a) the operational burdens imposed on financial services institutions by transaction reporting requirements under the Markets in Financial Instruments Directive and the European Market Infrastructure Regulation, and
(b) whether those burdens may be alleviated through the development and deployment of blockchain-based tools, such as transaction ledgers, accessible by regulators and trade repositories.”
Amendment 128, Lord Holmes of Richmond, Committee Stage Day 6, Financial Services Bill, House of Lords, 10 March 2021

As I have said since writing my 2017 report, Distributed Ledger Technologies for Public Good, I would never claim that DLT is the silver bullet; I would not even say that is necessarily a silver bullet, but I would say that it is surely worth a shot. I hope the government will consider this amendment seriously.

The second ‘DLT’ amendment looks at the potential use of these technologies in financial market infrastructure. Full text of the amendment:

Insert the following new Clause—
“Distributed ledger technologies and market infrastructure
Within three months of the passing of this Act, the Secretary of State must report to Parliament on the options for a pilot regime for financial services market infrastructures based on distributed ledger technologies.”
Amendment 133, Lord Holmes of Richmond, Committee Stage Day 6, Financial Services Bill, House of Lords, 10 March 2021

There is a real opportunity to experiment and to play, to see what can be achieved through having DLT-enabled financial market infrastructure. A potential sandbox at the Bank of England could be of use in this area, as well as potentially with the work on central bank digital currency and other elements which come under the Bank of England’s remit. We need the government to be bold in exploring the potential benefits – for the public good – of this technology and I look forward to the governments response to these proposed amendments.

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