A recent report from Moody’s assessment shows that blockchain technology promises to streamline the issuance and management of covered bonds, but its adoption remains hampered by legal, technical and regulatory barriers.
The Ratings Company report highlights the potential of blockchains to increase operational efficiency and transparency in the Cover Bond market. Deploying smart contracts allows issuers to automate tasks such as asset replacement, but real-time transaction data can improve investor visibility and shorten the timeline of bond issuance.
However, Moody’s notes that current blockchain usage is largely limited to the issuance of chain bonds, and key features such as settlements and asset management still rely on chain infrastructure. Moody’s says that blockchain technology is still unlikely to be fully integrated into a covered bond market.
Key obstacles include the need to secure blockchain systems on off-chain mortgage assets, legal uncertainty regarding smart contract facilities, and regulatory concerns regarding the use of digital currency for payments. Furthermore, high issuing costs, legacy IT systems, and divergences in national legal frameworks further complicate adoption.
Despite the challenges, Moody’s suggests that jurisdictions with supportive legal structures and compatible bond programs could be better positioned to embrace blockchain innovation. Until then, the role of technology in the covered bond market will likely remain limited.
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