Michael King

In 1983 the Thatcher government and the London Stock Exchange settled a wide ranging anti-trust case against restrictive practices known as big bang. The effect of big bang led to significant changes to the structure of financial markets and changes to the regulatory environment. There is a view that the maximally disruptive potential is mainly in public blockchains as these have the potential to completely disintermediate existing financial institutions, which could also lead to a big bang moment.

Of course, we don't know how regulators and the traditional legal system will react let alone how the financial industry will fight back. There will certainly be powerful forces pulling in different directions and who knows what will emerge. 

We mustn’t forget that we have relied on the trustworthiness of intermediaries for thousands of years and, in fairness, they have performed well enough to allow our current societies to function reasonably well (with the odd unfortunate lapse). Now for the first time we have a potential alternative in the trust space, one aspect of which could be “smart contracts “which could be a significant a game changer.

What we have seen to date is the potential for these technologies being adapted and adopted by the finance industry for various mildly disruptive applications. There does indeed seem to be good potential for reducing technology and operations costs in a number of application areas - settlements, payments, corporate actions, trade finance, registration to name a few. These could be considered as only mildly disruptive because they are basically doing the same things, in much the same way but with some optimisations and some costs removed.

More disruptive are using the technologies to do new things but still in a permissioned and institutional world. We are really at the very beginning of this but a notable example is the Bank of England's idea of digital sterling and effectively allowing retail customers to own central bank money. It will be very interesting to see how that plays out as this offers the retail client finality which could certainly disrupt the chain. 

With all the talk around financial services we mustn’t forget is that blockchain can easily be adopted in the corporate world and in the audit world and there is some work being done on continuous audit which could be hugely beneficial.




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