Bank of Valletta discusses Distributed Ledger Technologies in banking

Kenneth Farrugia, Chief Business Development Officer, discussed the opportunities and threats posed by Distribution Ledger Technologies in Banking. He was addressing participants during the Information Session on Blockchain legislation organised by The Malta Chamber of Commerce, Enterprise and Industry in collaboration with EMCS at the Exchange Buildings in Valletta on Thursday.

Among the alternative routes taken by banks that choose to embrace Distributed Ledger Technologies, Farrugia highlighted banking settlement system, customer identification and KYC solutions, payment solutions, trade finance and syndicated loans.

“Cost savings and improved customer service are clear benefits for those areas of banking where distributed ledger technologies such as digitalisation, faster transaction handling and improved KYC are applied,” Farrugia explained. However, he cautioned about the importance of studying the challenges posed by every solution. “For instance, KYC requests may cause delays in processing banking transactions and result in duplication of effort between banks.” Referring to the costs involved, Farrugia mentioned the Thompson Reuters (2016) survey which claims that KYC costs average an estimated USD 60 million. “Financial regulators are another important variable to consider. To what extent will financial regulators be willing to accept that Distributed Ledger Technologies meet Anti-Money Laundering and GDPR legal and regulatory requirements?” he asked.

Payment solutions proved to be another fertile ground for discussion. “The scalability issues of the most popular blockchain networks today are well known, along with the time required to confirm a transaction.” At present, scalability and privacy issues are among the key challenges faced by distributed ledgers to process crossborder payments,” Farrugia stated.

“Among the most common challenges running across all solutions, the need for a clear regulatory environment, coupled with the operational barriers that may lead to a defragmented market and cultural barriers are the most apparent,” he said. “It is critical to address these issues in order to facilitate communication between fintech players on the one hand, and the conventional banking players on the other,” Farrugia concluded.

Other keynote speakers who participated in this session included. Parliamentary Secretary for Financial Services, Digital Technology and Innovation Silvio Schembri, who gave an outline of the blockchain legislation which has recently been approved by Parliament. Gordon Micallef, Partner at RSM Malta gave an overview of the Malta Digital Innovation Authority Act and the Innovative Arrangement and Services Act, while Christopher P. Buttigieg from the Securities and Markets Supervision Unit at the MFSA discussed the Regulator’s role on the VFA Bill.