The UK banking system is among the most exposed to disruption from blockchain technologies, according to a report published today by an influential credit ratings agency.
Cross-border claims from banks in the UK to counterparts in others are equivalent to more than 90 per cent of GDP, according to Moodys Investors Services, underlining the Citys place at the heart of the international financial system.
However, the implementation of blockchain technologies for clearing and settlement of transactions could cut out the need for middlemen in trillions of pounds worth of transactions, disrupting a large part of the Citys financial services.
Colin Ellis, a Moodys managing director, said the UK “stand[s] out as having a lot of cross-border claims” relative to other nations, with only the much smaller economies of Luxembourg and Hong Kong more exposed.
Cross-border transactions currently take a tortuous path through each partys bank, and correspondent banks with foreign links, and in a process which can take days and add significant costs for the end clients.
Blockchain technologies promise to remove the middlemen, with an immutable, distributed ledger rather than one reliant on a trusted (and possibly expensive) counterparty.
While the eradication of costs from transactions could be a boon to end users, it represents a challenge to the portions of the industry which provide those services.
“Tech shocks nearly always involve winners and losers,” said Ellis. “There is a clear need for banks to be engaged with these technologies and how theyre going to use them.”
Other nations which could be particularly exposed to disruption are Belgium and Switzerland, the report found.
Meanwhile, blockchain technologies could also push down the fees and commissions charged by banks on foreign exchange transactions, with the Swiss system again among the most at risk. Half of Swiss bank revenues come from fees and commissions, compared to around 35 per cent from Italian, Canadian and Israeli banks.