Blockchain technology promises to streamline the issue and management of covered bonds, but its acceptance remains impeded by legal, technical and regulatory barriers, according to a recent report from Moody’s assessments.
The report of the Ratingsbedrijf emphasizes the potential of blockchain to improve operational efficiency and transparency in the market for covered binding. By implementing smart contracts, emitting
However, Moody’s notes that current blockchain use is usually limited to issuing bonds in the chain, where important functions such as settlement and asset management still depend on off-chain infrastructure. Fully integrating blockchain technology into covered bond markets remains unlikely in the short term, Moody’s said.
The most important obstacles include the need to anchor blockchain systems to anchor mortgage assets outside the chain, legal uncertainties surrounding the enforceability of smart contract and regulatory concerns about the use of digital currency. In addition, high issue costs, Legacy IT systems and various national legal frameworks complicate approval.
Despite the challenges, Moody’s suggests that jurisdictions with supporting legal structures and compatible bond programs can be better positioned to embrace blockchain innovation. Until that time, the role of technology in the covered bond market will probably be limited.
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