The European Securities and Markets Authority (ESMA) on Tuesday released a report on Distributed Ledger Technology (DLT), which sets out its views on the technology, the tech’s possible applications, benefits, risks and how it maps to existing EU regulation.

ESMA believes that the technology could bring a number of benefits to financial markets, including more efficient post-trade services, enhanced reporting capabilities and reduced costs. It expects the early applications of DLT to focus on optimising processes using the current market structure.

Since the DLT is still at an early stage, ESMA thinks that regulatory action is premature at present. It expects first areas of use to be less automated processes in low volume market segments and processes with minimum dependency on the existing legal framework.

“At this stage, ESMA believes that it is premature to fully appreciate the changes that the technology could bring and the regulatory response that may be needed, given that the technology is still evolving and practical applications are limited both in number and scope”, the report said.

Drawing on the responses to its Discussion Paper, ESMA said that the current EU regulatory framework does not represent an obstacle to the use of DLT in the short term. However, it added that a number of concepts or principles, such as the legal certainty attached to DLT records or settlement finality, may require clarification.

ESMA also pointed out that beyond pure financial regulation, broader legal issues, such as corporate law, contract law, insolvency law or competition law, may affect the deployment of DLT.

“ESMA will continue to monitor market developments around DLT to assess whether a regulatory response may be needed. Active engagement from regulators and coordination at EU and international level are paramount in ESMA’s view to ensure both that DLT does not create unintended risks and that its benefits are not hindered by undue obstacles. Meanwhile, ESMA believes that the industry should work towards solutions to address the challenges posed by the technology”, it added.