Eugene Grygo, Chief Content Editor, FTF News
The media (including FTF News) are excited about the prospects of blockchain/distributed ledger technology (DLT). But a startling moment from the SEC’s seminal FinTech Forum last month (November 14) has opened a view into the anxiety around DLT.
It’s a fair question to ask if this promising technology could eliminate back-office processing positions entirely. At the very least, it could change the nature of the back-office forever.
The moment came during “Panel 2: Impact of Recent Innovation on Trading, Settlement, and Clearance Activities,” which was focused on the impacts of DLT. The panel offers a great description of how DLT works, and the business and IT reasons for its birth and growth.
The moderator, Valerie Szczepanik, who is head of the SEC Distributed Ledger Technology Working Group and assistant director, SEC Division of Enforcement, asked Chris Church, chief business development officer for DLT startup Digital Asset Holdings, about disintermediation. (Church, as you will recall, was CEO for the Americas and global head of securities at SWIFT.)
“Who stands to lose out if DLT is widely adopted? So, will there be changes to the entities currently populating our regulatory landscape, and if so, how?” Szczepanik asked Church, who had touched on the subject earlier in the discussion.
To paraphrase Church, he initially pointed out that there has been a great deal of hype around DLT taking “various financial institutions or intermediaries;” and that hype is reminiscent of the talk in 1995 about the damage that the Internet and the Web might do to financial institutions.
However, Church acknowledges that DLT will change the roles that institutions and other market participants will play.
“Now, there will be people who are casualties to this. Those that don’t wake up to it won’t be as competitive. Those that don’t make those changes will die. I mean, I don’t know if you remember, back in 1995, when you first downloaded your movie, it took a very long time, and by the way, you probably went to Blockbuster to get videos. We don’t do that anymore now, right? Two minutes and you download a movie. So, yes, there will be a few casualties, but it’s not as exaggerated as I think the hype would let you believe,” Church says.
“Custodians will still be — like bank branches, they will still exist. They’ll just be doing different things. There will be a lot asset servicing going on,” Church predicts. In addition, the market infrastructure providers will remain but “will be doing different things.”
Yet, hype aside, there will be big changes as Church alluded to when mentioning his daughter who recently graduated from college.
“If she said to me, ‘Dad, I’m going to go into the back office of a financial institution in their processing arm,’ I would have ripped my hair out, because that’s not where the jobs are,” Church says. “Those jobs will disappear, but that doesn’t mean to say the institutions are going to disappear.”
In particular, Church argues that securities market infrastructures will not be completely disintermediated because of regulation. “Since 2008, I think regulators are feeling a lot more comfortable with the regulation they’ve put in place. I don’t think they anytime soon are going to turn around and give up that regulation. So, regulation is one of the barriers to stopping this happening, but of course, that can change,” he says.
“You could also say, well, market forces is one of the reasons why you’d want to get rid of some of these intermediaries. Yeah. Well, why is that? Well, because they’re expensive. Well, you know what, some of these intermediaries will shift and change their costs,” Church says. “Their roles will change, and I think that’s true of a custodian, that’s true of a market infrastructure. It’s true of many of the organizations that are potentially going to be disintermediated by this. The processes will change. The organizations will change, but they will not go away anytime soon.”
I guess those in the back office will be somewhat consoled that certain institutions will remain and may be hiring. However, others working in back offices, as Church has noted, may legitimately start to feel as if there’s an expiration date on their positions and careers.
It’s impossible now to know for certain if DLT will render the back office obsolete. However, given the potential of the technology it might be best to learn more about it.
On its website, the SEC is offering a link to an archived video of the event: http://bit.ly/2hJEyfM and a full transcript of the entire forum.
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