The number of banking and financial institutions researching the use of blockchain technology in their operations is increasing each day. The number of collective projects involving multiple institutions is a standing proof of that.
With more blockchain projects reaching trial stage, the process of widespread implementation of applications built on distributed ledger is probably a couple of years away. Once financial institutions start availing the benefits of Bitcoin’s underlying technology, their performance is expected to improve drastically. Having recognized the upcoming shift in the industry, Standard & Poor’s — the global rating agency is planning to factor these changes into their rating mechanism.
A report published by Standard & Poor’s last week states that the firm will be keeping a close eye on the developments. Once the widespread use of blockchain technology among financial institutions becomes evident, the changes in its rating mechanism will come into effect.
However, Standard & Poor’s doesn’t expect the necessity to arise anytime soon. Even though it agrees about the potential impact of the technology in streamlining back-office operations, reducing clearing and settlement times, facilitating payments and generating new revenue streams for the institutions, it expects the technology to remain a niche for years to come. The company was quoted by a financial news outlet saying,
“While blockchain technology will likely be used for niche applications, market-wide adoption is a long way off, since it will require consensus among market participants and, in some cases, regulatory approval.”
Given the currency regulatory hurdles, banking institutions don’t have to worry about their ratings being affected for not taking part in the blockchain revolution during its early days. This will, in turn, create a leveled playing field as far as the Standard & Poor’s rating is concerned. Currently, it is mostly big banks and financial institutions that are actively investing in the research and development of distributed ledger technology based applications. Smaller players are yet to jump on the bandwagon due to high monetary and manpower costs.
Now, instead of actively participating in sustained research activities smaller financial institutions can wait till the technology is standardized before implementation.
Ref: CNBC | Image: Shutterstock