DLT-Based Enhancement of Cross-Border Payment Efficiency – A Legal and Regulatory Perspective

Traditionally cross-border payments have relied on a mutually trusted central entity. Distributed ledgers, blockchain and smart contracts (together dubbed “distributed ledger technologies” or DLT) could provide an alternative to that approach. However, different DLT applications in the context of cross-border payment come with legal challenges. Hence, it is necessary to analyse the extent to which financial law and regulations are fit to deal with DLT-based payments.

It is widely acknowledged that conflicting laws and regulations in a cross-border context could create an impediment to smooth cross-border payment flows. However, research so far has focused on technical concepts and lacked legal details. In turn, there is a gap in legal research as to what in detail creates said barriers. This BIS research fills this gap. The research outlines several concepts for DLT-based payments and then goes on to inquire to what extent financial law and regulation are fit to deal with DLT-based payments. This analysis of the legal challenges can inform authorities when adapting their laws and regulations, and thus reduce the legal risk for DLT-based cross-border payments.