Banking Investment News

World securities regulatory body asks if DLT can reduce conflicts of interest

financial regulation

Earlier this week, the International Organization of Securities Commissions (IOSCO) published its consultation report ‘Conflicts of interest and associated conduct risks during the debt capital raising process’. The organization is seeking feedback, including comments on the benefits and risks of blockchain in debt capital raising and its potential role in addressing conflicts.

IOSCO is the umbrella body of securities regulators across the world, with members regulating over 95% of the global securities markets. Some of the members of the IOSCO Board include the U.S. Securities Exchange Commission, Australian Securities and Investments Commission, the Securities and Exchange Board of India, Hong Kong’s Securities and Futures Commission and the Monetary Authority of Singapore.

The recent paper discusses problems associated with debt issuance and the conflicts of interest due to the role of intermediaries. IOSCO said it recognizes blockchain as one of the priority technologies in fintech. It created the DLT (distributed ledger technology) workstream to produce a series of papers on the application of blockchain to securities markets.

IOSCO said the transparency offered by blockchain might enable fair allocation of debt securities by issuers. Additionally, the technology could replace some aspects of debt issuance, such as book building, to eliminate intermediaries. The consultation is seeking views on these points.

In May, the DLT workstream published a paper describing the issuance of World Bank’s blockchain bond, bond-i. The IOSCO board said it has been studying the integration of blockchain into traditional processes and is exploring the regulatory issues in different jurisdictions.

The three critical aspects of debt the raising process covered in the report include pricing of debt securities and risk management, quality of available information to investors, and allocations of debt securities.

Blockchain bond progress

Meanwhile, there have been several bond issuances that claim to reduce cost and time by using blockchain for bond creation, bookkeeping, underwriting, network management, bond purchase, order summary, pricing and placement among other things.

Last week, the Bank of China completed the issuance of 20 billion yuan ($2.8 billion) worth of bonds using its proprietary blockchain system.

A few months ago, Banco Santander issued a tokenized $20 million bond on the public Ethereum blockchain, and later redeemed it. Spanish bank BBVA has arranged several loans and bonds using blockchain.

HSBC Singapore is working with the Singapore Exchange and state-owned Temasek to trial blockchain for the Asian bond market. Additionally, the Thai government is also running a pilot for bond issuance.


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