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

56 Pages Posted: 14 Jan 2022

See all articles by Dirk A. Zetzsche

Dirk A. Zetzsche

Universite du Luxembourg - Faculty of Law, Economics and Finance; European Banking Institute

Linn Anker-Sørensen

Ernst & Young Norway; University of Oslo - Faculty of Law

Maria Lucia Passador

Bocconi University - Department of Law; Harvard University - Harvard Law School; European Banking Institute

Andreas Wehrli

affiliation not provided to SSRN

Date Written: January 12, 2021


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. This regulatory paradigm is under pressure in the world of DLT-based payment arrangements where some ledgers 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.

Despite the wide-ranging interest in DLT-based payment systems, research so far has focused on technical concepts and lacked legal details. This paper seeks to fill this gap by providing an initial analysis of the legal challenges related to DLT-based payment systems.
From a legal perspective, the distribution of functions in DLTs comes with new risks, and the need for additional agreements, ongoing coordination across, and governance arrangements among the nodes. Further, in a cross-border context, multiple regulators and courts of various countries (asking for compliance with their own set of rules and regular reporting) will be involved. All of these must decide whether for compliance with the law and regulations they look at the DLT as a whole (herein called ‘the ledger perspective’) or each individual node (that is each institution participating in the DLT, herein called ‘the node perspective’). Moreover, financial and private law must provide for risk allocation, liability, responsibility and accountability for all legal obligations related to each function and activity.

This paper examines the extent to which the ledger perspective or the node perspective should prevail against the backdrop of a range of DLT use cases, resulting in policy recommendations for regulators. In this paper, we propose the adoption of what we call an enabling approach for payment systems: ledger operators must specify in a Plan of Operations subject to regulatory approval to which rights and obligations the ledger perspective applies; in the absence of such a stipulation, rules apply based on the node perspective. However, for systemic risk controls, AML/CFT, data protection and governance, as well as DLT governance, we propose a reversed default rule in which the ledger perspective prevails in the absence of rules stipulating that the node perspective applies. Finally, in private law matters, we propose protecting consumers and SME clients through a standardized payment services contract structure, without mandating details

Keywords: Distributed Ledgers, Blockchain, Payments, Cross-border Payments, Law

Suggested Citation

Zetzsche, Dirk Andreas and Anker-Sørensen, Linn and Passador, Maria Lucia and Wehrli, Andreas, DLT-Based Enhancement of Cross-Border Payment Efficiency – a Legal and Regulatory Perspective – (January 12, 2021). Available at SSRN: https://ssrn.com/abstract=3984523 or http://dx.doi.org/10.2139/ssrn.3984523

Dirk Andreas Zetzsche (Contact Author)

Universite du Luxembourg - Faculty of Law, Economics and Finance ( email )

Luxembourg, L-1511

HOME PAGE: http://wwwen.uni.lu/recherche/fdef/research_unit_in_law/equipe/dirk_andreas_zetzsche

European Banking Institute ( email )


Linn Anker-Sørensen

Ernst & Young Norway ( email )


University of Oslo - Faculty of Law ( email )

PO Box 6706 St Olavsplass
Oslo, 0130

Maria Lucia Passador

Bocconi University - Department of Law ( email )

Via Roentgen, 1
Milan, Milan 20136

Harvard University - Harvard Law School ( email )

1563 Massachusetts Avenue
Cambridge, MA 02138
United States

European Banking Institute ( email )


Andreas Wehrli

affiliation not provided to SSRN

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