DLT-based enhancement of cross-border payment efficiency - a legal and regulatory perspective

Financial law and regulation have, to date, assumed that regulated activities and functions are concentrated in a single legal entity responsible and accountable for operations and compliance. Even with regard to financial market infrastructure where the regulatory perspective acknowledges the need for interoperability of many entities as a system, each entity is subject to its own rules and regulations, and can thus meet its own compliance requirements independent of other system participants. The entity-focused regulatory paradigm is under pressure in the world of DLT-based payment arrangements where some ledgers, and thus the performance of the services as such, are distributed. DLT arrangements could provide an alternative to the traditional reliance on a mutually trusted central entity to transfer funds and enable the creation of new foundational infrastructures by distributing technical functions or linking existing systems. As such, we identify and outline concepts for use cases where DLT is potentially improving the efficiency of cross-border payments, namely a Best Execution DLT, a DLT application for a Network of Central Banks, a DLT as an AML/KYC utility, as well as DLT arrangements for an Identity Platform, a Small Payments Platform and, finally, an Interoperability Platform connecting multiple closed-loop and proprietary banking systems.