Stephen Scharf, the DTCC's chief of security, warns about the potential systemic risk of blockchain ... [+]
The Depository Trust and Clearing Corporation today identified blockchain as a potential threat to global financial infrastructures, in its annual Systemic Risk Barometer survey.
Among a bevy of potential threats identified by the survey's respondents from the financial services industry, blockchain, the technology first popularized by bitcoin, is listed as part of the broader fintech category.
What is most interesting about the results, though, is that even as the DTCC’s own security chief elaborated on the concerns about blockchain, the securities giant, which processes $1.61 quadrillion in securities annually, is preparing to launch its own blockchain solution.
“DTCC embraces the promise that fintech innovations hold to further mitigate risk and reduce post-trade costs,” said Stephen Scharf, the DTCC 's chief security officer, in a statement. “But as the industry continues to adopt fintech innovations, like blockchain, AI and cloud solutions, we must ensure that those innovations do not jeopardize the safety and security of the current global financial marketplace.”
A fifth of all respondents identified the broader fintech category as a potential systemic risk in 2019, an increase of five percent over the previous year. Respondents were asked to identify the top five systemic risks they saw to the broader economy.
Blockchain was first used by bitcoin in 2009 to move value around the world without the need of banks. While the cryptocurrency industry is currently struggling, losing 80% of its value over the past year, blockchain continues to be explored by JP Morgan, Northern Trust and a number of other financial enterprises.
This year's list of systemic risks was topped by cyber risk, with 69% of respondents selecting it as a concern; geopolitical risks and trade tensions, cited by 55% of respondents; Britain’s exit from the European Union (Brexit), cited by 49% of respondents; and excessive global debt and the impact of new regulations, cited by 28% of respondents.
Even as Scharf warned about the potential negative impact of blockchain, which by its very nature is designed to let users move value without central authorities like the DTCC, the clearing giant is in the final stages of its own blockchain project. Next year, the DTCC is expected to replatform its $11 trillion Trade Information Warehouse (TIW) using the permissioned Axcore blockchain, inspired by the ethereum blockchain.
The DTCC’s complicated relationship with blockchain reflects the financial industry’s interest and concerns on a larger scale, according to Sharf. To further demonstrate the point, Kenneth Rogoff, a former chief economist at the International Monetary Fund, yesterday warned that investing in cryptocurrency was like buying "lottery tickets that pay off in a dystopian future where they are used in rogue and failed states."
For his part, Scharf added: “The increase in concern around fintech’s impact on systemic risk demonstrates a growing awareness of the potential risk and highlights the need to evaluate both risks and rewards associated with fintech initiatives."
