Developing processes and oversight techniques for increased use of cryptocurrency

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The views and opinions expressed in this article are those of the thought leader as an individual, and are not attributed to CeFPro or any particular organization.

By Katey Neate, Chief Risk Officer Asset Servicing and Digital, BNY Mellon

Where are you seeing potential uses for cryptocurrency within financial services?

If we take the narrow view of cryptocurrencies there are clear use cases for example as a store of value, as a peer-to-peer payment mechanism (such as digital cash), as an investment or as collateral. If we broaden that out though to include the full spectrum of digital assets, with the common factor being the Distributed Ledger Technology (DLT) on which they are built, the possibilities are endless. What I find most compelling as a risk manager are the use cases that help to drive efficiency and automation, and to reduce risk in what have historically been manual and error-prone areas. Consider for example the use of tokenization in the bond market: smart contracts built into the tokens on the blockchain which automatically execute when certain conditions are met can eliminate multiple manual touchpoints and reduce operational risk. In the payments space, payment rails built on DLT can provide instantaneous immutable value transfer. It’s not just bonds: almost anything can be tokenized and represented on a blockchain, either natively, i.e. issued in digital format, or converted from its existing format, be that equities or bonds, fund units, or real assets such as real estate and even racehorses and wine collections. Commercially, tokenization gives the power to increase liquidity, open up markets to new entrants and enables real time access to information for all participants, but it’s also an opportunity to manage risk by driving operational efficiency, reducing the need for reconciliations and increasing transparency.

Katey will be presenting at the 11th Annual Risk EMEA Summit. This event will be taking place on June 13-14 at the Tower Hotel in London. Click here to view the full agenda, and find out how you can register for this live in-person Summit!

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