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Magazine Issues » April 2022

Roundtable: The digital transformation opportunity

FundsTech – What are your thoughts on how blockchain could drive the push towards T+0 settlement?

Harper – The transfer agency space is littered with lots of old-fashioned ways of collecting, processing, handling and reporting data. Blockchain could provide a different environment.

Firms want to be excellent at portfolio management, and in the past, they had to hold all the retail investor information. Think about how much duplication there is if the same banks in Singapore or Chile have already gone through the work of replying to all the KYC [know your customer] and regulatory data required to work with the asset management community. Could you use blockchain to allow multiple asset managers to benefit from that regulatory response or that compliance response?

Today, the industry is processing trillions of euros in funds, and ETFs could take out an expense by just eliminating that legacy process of many people providing the same information over and again. Now, the challenge is how do you get digital ledger technology (DLT) to support that legacy process in a lean way?

At Euroclear we call that initiative DFMI – the digital financial market infrastructure.

Roche – DLT will be used more to streamline and digitise the business and the processes, and eliminate the need for reconciliation of data, and eliminate intermediaries.

The CSSF, the regulator here in Luxembourg, has published a white paper outlining the potential opportunities offered by DLT and blockchain in financial services, and they do mention KYC and customer identification as areas where DLT will increasingly be used, which is something that Anthony mentioned earlier.

Falempin – Even if we don’t share the KYC status itself, we could make it easier for investors to share their data.

Roche – Yes, and even not asking investors for the information but using publicly available sources. Some trusted sources you can connect to via APIs and you get the required information directly without having to bother the investor anymore.

Falempin – We have made an identity solution, a self-sovereign one, so step by step you enrich your data with your information or data coming from other sources. You can then submit this data every time you want to invest in a new product. It’s a way to not redo the work.

Everybody is doing the same work and when you want to make a transfer, you need to make sure the other people have done the work that you need to do as well.

Today, we can do the T+0 settlement on-chain. The issue is more an operational process now to make sure everybody works the same way. So, it is taking some time, but now at least everybody wants to go in this direction.

FundsTech – Why is trust an important element within digitalisation?

Roche – Trust is fundamental for all business relationships. Working together with people you trust is essential for growth, evolution and is the key to agility. It generates innovative ideas and moves things forward quickly, which is required when we talk about digitalisation.

Stevens – A way to have more trust in regtechs and fintechs could be to set up a European agency that would certify or verify all the different solutions that are in the market. It could be a private agency that runs through different frameworks – ISO certifications and ISA audits – at an affordable cost for the nascent solution providers.

It could be the industry providing subsidies, or governments or regulators making sure that when financial actors are looking for solutions, they can check and say, ‘OK, this solution has been vetted, it properly applies the legislation, and we can rely on it.’

Now, how about a bank offering a new solution to its customers? I think the trust should be built all around the added value you are bringing to them, because anything new always has a steep learning curve.

If you can convey the message about how much resource and time they are going to save by using such a solution, they will put the effort into using it and start slowly trusting it.

Falempin – It is obvious we need big players to do projects because all the other ones don’t want to be the first ones. In the blockchain, it is quite structural and strategic, so we need more large financial institutions to launch projects, and actually, many of them are doing it step by step.

On this idea, a few years ago when Facebook announced, ‘We will do some kind of stablecoins,’ suddenly everybody was contacting us, ‘What is it about? What is tokenisation? What is blockchain? Should we do something? We thought we had five or ten years to think about it and it’s coming now.’ We need that kind of trigger so that people will realise they can benefit from these new technologies. There are opportunities and it’s OK to be among the first ones. Usually, that’s what we need to trigger some big changes, and blockchain is a big change.

FundsTech – Luc, will companies like Tokeny come under regulatory frameworks, and what have regulators said recently about the treatment of blockchain provider companies?

Falempin – Currently, we cannot be regulated because there is no status for us. After all, we are just a tech provider. We have some issues like this, so we would like to be regulated, but it doesn’t make too much sense for what we do. As a fintech, if you don’t work with the big players you don’t exist, so the step is quite high.

On March 14, the laws for the EU’s Markets in Crypto Assets (MiCA) should be proposed. It will say that security tokens are securities, so MiFID rules should apply. Everybody knows this already and in some countries, such as Luxembourg, it has been made clear. At least it will harmonise at the European level, which will make a lot of things easier.

The issue is more on the stablecoin side because it’s nice to have securities on the blockchain, but if you want to do any kind of settlement on the blockchain, you need stablecoins. So, you need to represent the cash on the blockchain, and those cash tokens are not very clear in terms of regulation in Europe.

That’s why if you check the crypto markets, all the top stablecoins are in dollars. That is an issue we have in Europe and we need to react quickly.

Regulators are quite innovation-oriented. We are very much welcomed by all of the regulators and they want to understand.