How Securitization Can Benefit from Blockchain Technology

Blockchain and distributed ledger technology has drawn increasing attention from both the business and legal communities. This article addresses the potential benefits of blockchain when applied throughout the securitization process. From reduction in cost, time, and fraud risk to increases in certainty, trust, and accuracy, the benefits can be significant. Tracking financial assets on a blockchain can reduce reliance on credit rating agencies and enable investors to follow more closely the performance of assets and calculate associated risk. This should increase confidence for investors and increase interest in the secondary market. By providing a high level of data security, blockchain can also lower the due diligence burden and remove regulatory inefficiencies from the securitization process. Through the elimination of certain third-party intermediaries, blockchain can lower costs and save time. Moreover, by facilitating the use of smart contracts, blockchain can help to consolidate and standardize complicated pooling and servicing agreements and track a servicer’s collection activity. We encourage readers to explore blockchain and its potential impact on securitization in further detail. TOPICS:Fixed income and structured finance, information providers/credit ratings