Moody’s flags AI and blockchain potential in transforming financial markets

The use of blockchain technology and artificial intelligence (AI) could potentially reduce the costs borne by issuers of financial instruments such as bonds over the next five years, according to Moody’s report.

The agency’s experts also noted that implementing innovations will require higher IT spending and “significant investments”. However, in the long run this will pay off, they say.

According to Moody’s, recent advances in artificial intelligence and distributed ledger technology (DLT) have increased their potential to transform financial markets.

The agency believes that AI could potentially reduce costs for sector companies by automating manual tasks, while DLT could “gradually lower costs, especially for small issuers”.

Tokenized bonds can reduce transaction costs and make capital markets more accessible, removing intermediaries such as banks, the experts said. In their view, liquidity in the secondary market will rise as a result of such instruments.

According to the experts, the effects of using new technologies are likely to be positive, but may vary significantly depending on the country, region, company or worker. Some entities will be harmed by technological innovations, they acknowledged.

Moody’s also highlighted challenges in implementing the underlying cryptocurrency technology, including potential avenues for tax evasion, money laundering and terrorist financing in the absence of proper regulation.

Earlier in March, Moody’s experts described the benefits of applying blockchain by municipalities.