SWIFT has announced the availability of a new paper investigating the application of business standards to distributed ledger technology (DLT) and smart contracts (SC). The paper examines the need for the financial industry to find agreement on the format of shared data, business processes, roles and responsibilities so that these new technologies can be used to efficiently address complex problems in financial services.
Both DLTs and SCs are currently generating a huge amount of interest amongst financial institutions and technology providers with their promise to transform automation within the financial services industry. To enable application on an industrial scale, however, a level of standardisation is required. Market participants will need to work together to define and agree on the meaning and format of the data deployed on DLT platforms, outline formalised business processes, and clarify legal implications.
The paper examines the role of standards from two distinct angles: the necessary preconditions for standardisation of DLT/SC, and the possibility of repurposing some of today's existing standards. The paper also posits a series of questions, including: what are the necessary preconditions for standardisation of DLT/SC and are these met? What would be the characteristics of standards in the DLT/SC world? What can be learned from previous industry standardisation initiatives? What can be reused today from existing standards? What are the benefits of reusing existing standards?
"The promise of DLT is the synchronisation of financial data between multiple organisations, whilst smart contracts can further provide self-executing efficiencies on the ledger," says Stephen Lindsay, Head of Standards, SWIFT. "This paper addresses some integral questions about how DLT/SC automation can run smoothly in a multi-party network environment and highlights the importance of avoiding 'reinventing the wheel' when it comes to business definitions that facilitate interoperability. The paper recognises that full-scale standardisation of DLT/SC use cases is premature; however, SWIFT stands ready to work with the community to conduct further studies into the reuse of existing business standards in order to better facilitate the efficient workings of DLT/SC technologies for the financial industry as a whole."
In order to avoid the fragmentation of global standards, SWIFT sees the potential of DLT/SC as a clear opportunity for the financial community to coordinate efforts over common messaging and data standards. Recent global standards, such as ISO 20022 (financial messaging) and ISO 17442 (Legal Entity Identifier), enable the creation of robust, interoperable processes between multiple parties by reducing the ambiguity of specifications and fostering efficient reuse of knowledge, skills and technology. SWIFT, as a key contributor to financial business standards for over 40 years, including ISO 20022, is ready to offer its experience to support this important effort in order to meet the needs of the financial industry for security, resilience and scalability.