In a report this week, Germany’s Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht), highlights the potential introduction of distributed ledger technology, also known as blockchain technology, in the financial industry.

Known by its abbreviation BaFin, the financial regulatory agency emphasizes the importance of having awareness of potential risks in completely adopting the technology as well as specifically paying attention to threats of cyber attacks, money laundering and removing a centralized authority.

The author of the report, Luisa Geiling from BaFin’s Department of Securities Supervision in the International Division, writes:

The impact on the financial industry of increased or even full-scale deployment of DLT cannot be foreseen as of yet. However, it seems that it has the potential to establish a new standard in the financial market.

Keeping an eye on the possible risks right from the start is more important than ever. Data protection in transactions must e.g. be guaranteed and systems must also be protected from cyber attacks. Adherence to regulations on anti-money laundering, governance and compliance as well as for clearing and settlement must also be ensured. The lack of a central authority on conduct and regulations could pose problems here in particular.

Geiling opines that the introduction of distributed ledger technology (DLT) will likely eliminate the need for processing transactions through existing clearing and settlement systems, and banking remittances and other transactions will be completed in minutes or seconds rather than days.

The author also believes distributed ledgers will be suitable plaforms for trading data certification and storage, digital payment transactions, interbank trading and internal banking systems.

According to the report, BaFin has been focusing on distributed ledger technology for the past few months, is monitoring the latest developments in the FinTech industry closely, and is engaged in discussions related to the technology with other supervisory authorities.