Building the Digital Assets Ecosystem

[Music] a very good morning to all of you we've had some very interesting sessions including the last one and I'm sure this one is also going to be a very pivotal significant discussion because it's really at the heart of what's happening in the digital markets right now and where is the future headed if it has to thrive now the moderator already gave an introduction and I want to straight dive into this discussion with this very audite panel with Sebastian Nadin Dom niiko and Marian who's joining us uh through a video L hi Maran I hope you're doing well okay let's get started Sebastian as as a topic goes for the growth of the digital industry it's important that normal consumers have the trust that their transactions are going to be safe and done in an efficient manner that is something which the traditional industry and players like like yours have been able to ensure along with all the other big infrastructure players but now given the scale at which the digital markets are evolving it poses new challenges for traditional players like yours because here the technology has changed rapidly it has brought up new issues but at the same time it's also been able to make things a little more faster simpler because of blockchain solutions so my first question to you is that what do you identify as a key challenge as far as this new new landscape is concerned and how can players like you the big infrastructure players like Euro clear and dtcc what kind of a role they can play in terms of adopting technology and also at the same time integrating digital assets into the current Financial systems that we have thank you Samir a pleasure to be here so Euro clear has been uh was set up in 1968 so things have happened since 1968 and today so there has been an evolution but what we see is today the speed of evolution is definitely more exponential than it was in the past so as you said rightly we now focus and the industry focuses a lot on digital assets and and as a financial Market infrastructure and we are not the only ones but some of my colleagues on this panel are also part of that ecosystem we are evolving and adapting to those new technologies and to give the example of Eur we have launched a digital Financial Market infrastructure and coming to your question I think that one of the challenges to ensure that there is compliance with regulations and the digital Financial Market infrastructure that we have launched so uh blockchain uh FMI is actually uh under the regulations of csdr which is a European regulation that applies to all Central Security depositories so what is really important is to continue to apply and that's that's my first comment I'll have a second one is to continue to apply the current framework and ensure that the regulations to apply to the Legacy infrastructure are also uh regulations that you comply with in the new infrastructure talking about that together with uh nadin's institution dtcc and also with clear stream uh and I encourage you all to to have a look at those because uh that's available on the internet and and we have issued a white paper uh which talks around some of the digital asset Securities uh communication protocols that we believe as Financial Market infrastructure collectively that should be applied to any new environment that will deal with digital assets to bring you in Nadin uh over here I mean as Sebastian was touching upon some of the challenges and how they're really adopting talk us through some of the challenges you're seeing from where you're sitting I want to point out one before you get into the details one which I see from the outside is you know the rise of decentralized Finance right it offers Swift settlement Solutions but that posesses new challenges for traditional Industries that's just one I'm picking on maybe if you can address that while you answer the other ones you touch upon absolutely so listen our challenges are many uh back to Sebastian's Point we've been around for a while and our institutions were created uh to deal with a lot of the inefficiencies in the market and also try to streamline and try to provide better better faster and cheaper uh processing and we built scale over the years I think it's incorrect to assume that we don't innovate uh but we innovate slower than others because we've got a responsibility around the scalability um and the efficiency in the market right so we took this year the US markets from T you know to t+1 and we did it without a hitch now we don't we didn't do it alone we did it with a it was a uh a coalition of the Willing that came through so there is elements around and I'll get to define a second but it's around it is about collaboration the fact that the three icds are working together together we've got like three quarters of the world's assets so to in order for us to look and think through uh similar standards uh compatible infrastructure will help move things along the issue that we've had over these past 10 years is everybody in the absence of the three of us playing more of a leadership and a coordination role here is we've had these infrastructure mushroom up all over the place and they're in silos so yes we've proven the Technology's worked what we haven't been able to prove is that we could do this at scale and efficiently in a safe and a resilient we on the defi space we have to be a little bit careful this is the only evolution in Innovation we've seen in our history that's been led by the retail investor and defi works really well there for institutional we tend to be fiduciaries right we're managing other people's money um a smart contract doesn't really look good in orange you need a balance sheet you need somebody you need a throat to choke so defi will come to the institutional but it will be what we call institutional defi it will get facilitated with with people like us our mission uh we will still be part of that ecosystem much to the Chagrin of a lot of people our role will change though and uh but we still need to be there to ensure finality of settlement good control location right because if you're you know Grandpa and Grandma you're investing money you want to make sure you know where those funds are that they're going to be there to cash that pension and you just can't do that in an absolute defi environment so we embrace it we we'll make it better or we'll make it more suited to the institutional Market we're not fighting this we're actually working really hard to enable that change and we're out to prove that elephants can dance but you got to be a little bit patient because we can't break we don't we can't afford to break everything right we've got to do this uh innovate with purpose uh listen we're as impatient of anybody else but we've got to be careful on how we innovate that's an interesting perspective You' have given and I want to get Dominico in here Dominico from where you sit you work with a you know a host of Big PE uh you know central banks for example and we are seeing that central banks are also showing interest in digit digital currencies launching their own digital currencies where do you see what kind of role do you see playing in in building them help this kind of digital infrastructure because that also helps in terms of financial inclusion but then it comes with its own sets of challenges some of which with both Sebastian and NAD have just touched upon yeah thank you Samir uh well first of all we we want to be very close to these kind of developments uh the the logo of Asian infrastructure Investment Bank is infrastructure for tomorrow that that means that we yes we are in a hard real assets financing but we want to do so with the strong strong technology component so uh coming to what you mentioned in terms of the development on the Central Bank side and development of digital currencies so we are looking at developments with uh with a lot of interest there we have asked and have been admitted uh to a a bis Bank of international settlement uh sponsored initiative called mbridge and this is a an initiative that brings together uh all the central banks that are trying to develop digital currency and so that to make sure that uh that the the various platforms can have some kind of interoperability uh the the Central Bank of UAE for example is a member of mbridge they are there we are an observer of course we are not a central bank but we are an observer there we are trying to understand uh what can be done in terms of operating that and for us to work with financial intermediaries and see if we can use that technology to process our transactions so this this is a very early stages but also exciting in terms of the developments that are happening and the last thing I will say is that we like to to work with this type of Institutions because there has to be some kind of standard that you need to develop we heard in the previous uh uh in from the previous speaker there has to be some kind of standard to develop uh for example to create uh uh identity to protect the identity of the operators on these platforms and to work with such reputed organizations of course is a guarantee uh that this is going to work interesting I want to come to you Marian I know uh for you the challenges are completely different because here we are reading and listening and seeing the rise of these new age platforms like Ripple and Stellar who are coming up who claim to offer much faster cheaper efficient crossborder payments uh compared to traditional methods what kind of a challenge is that for someone like Swift and how are you looking to address that to adapt and also adopt uh as these markets the digital markets are evolving rapidly well thanks and and uh well good late morning to all uh I wish I could be in Abu Dhabi but I'm I'm happy to be with you today well thanks for your question actually I could not subscri subscribe more than with what Sebastian Nadin had said I mean Swift is also a major uh infrastructure that is a major player enabling cross crossb payments in the world we are you know um connecting more than 11,500 institutions uh 4 billion of accounts across the world and carrying the uh world GDP every 3 days why I'm saying that is that as Nadin was saying I mean we need to innovate and we are constantly innovating but we need to do that in a responsible way so we of course welcome competition you know wherever it it can come from um clients will uh more and more whatever whatever clients I mean it can be Banks corporate clients uh retail retail clients will continuously want to have more Choice more ways of payments for in more way of transacting uh um assets or or Financial assets for crossb payment I would just like to to remind you what is important what is important is has been defined by the G20 agenda the G20 leaders have come up with an agenda that um um is to enhance crossb payments to make them cheaper faster uh more accessible and and more transparent and I can I can say that we have achieved a lot lot uh already with the uh you know with the um uh with the technology we have for instance let me give you one statistic we know that 90% of all transactions uh are processed within an hour of course many of those are processed within seconds minutes and it's way above the Target that the G20 has set that is uh 75% of transactions should be process in less than an hour so of course blockchain technology can add a lot to that to transparency to speed uh but we can also address it uh with other technology it's not the only one technology in terms of um um yeah the platforms that we see and and and that are evolving we have a lot of new ways as I said of transacting you have instant Payment Systems you have wallets you have digital assets cbdcs you have you know other forms of finex that provide so the the the industry is fragmenting and the problem with a fragmented industry is that it can increase cost and can in can you know the ifm had done a very good study on that on saying okay no a fragmented industry can cost in terms of GDP Global growth and global trade so our role in this and and this addresses the new uh blockchain or DLT Technologies is to make sure that we can still be the blue of the market so that we can still bind the the ecosystem together and uh to make sure that uh our the financial institutions connected to uh to Swift uh are able to reach uh any platform and to use their Swift infrastructure to uh you know access different digital asset platforms cbdcs platforms wallets whatever you know uh the platform uh um maybe uh that would be interesting for our clients to be connected with in a seamless way uh and that's how we we want to tackle so really bringing interoperability not only between DLT platforms or other platforms but also between those platforms and the traditional Financial uh Financial ecosystem so Mar Maran just hold that thought just hold that thought I'm going to come to some of those topics as we progress because we don't have much time I want to bring back the discussion back here to Abu Dhabi now uh there are quite a few challenges and I want to pick up on one or two and see how you all are dealing with that Nadine maybe I can go with you on this first one is the Regulatory Compliance issue how do you ensure that you know there is there a lack of uniform regulatory framework for digital assets and how do you address that as you grapple with some of these challenges where you're adopting new technologies also integrating them with traditional financial markets how big a challenge is that it is a CH challenge but it's not an insurmountable challenge it it's it starts with education um of all our stakeholders right U so for us at dtcc and I believe it's the same with you we don't we don't deal with crypto today so we're focused on real world assets and we truly take the line of if it's the same asset it's the same risk it's the same regulation so we don't believe there's a massive regul regulatory impediment towards real world assets don't make me wrong there's there's tweaks that are needed so for example under us law we talk a lot about certificates well the digital world there are no certificates right but that's an easy rule change that easy all things being equal right but we we could we could do that and we've also proven over time that when you work with The Regulators you can act things take long time right you got to prove how the new relates to the old how you making sure there's investment protection uh investor protection you're making sure you can prove you can do AML kyc right and once they get able with it so in our case we helped Wisdom Tree launch the first tokenized mutual fund in the US took us four years four years to get regulatory approval but once they got comfortable with that the next one issued in the normal cycle of 70 days right the the third thing that we're having a discussion with The Regulators is they shouldn't be worried about the technology right they they they don't worry about how today we strike an nav and now there's a big debate between permission and permissionless and public and and in and private right these are things that we'll work through and and get there so education is huge right uh the regulatory framework uh we would like harmonization and we've seen obviously in Europe MAA um has provided a little bit more uh Clarity we have fit 21 in the US uh Congress that we hope will start to move again we've got a stable coin regulation so we're we're we're making a bit of progress but in my mind regulation hasn't been the main impediment for real world assets right it's been educ people are afraid of this they're afraid of the unknown they're afraid of change and and our ability to work together um in in Euro CLE ourselves and clar stream is a good ex and Swift right like we've all bonded together and we've done some pretty cool things uh but it's been it's been a slow and evolutionary change but the way we think the way we process um and the last thing I'll tell you is innovation is not just about technology it is technology it's Talent its regulation its standards it's a whole slew of things and Simon sort of talked a little bit about that in the earlier piece and but we've got a we we we like for us alone we set our four quadrillion dollars a year and I don't know how many people know how many zeros are in quadrillion it's a lot of zeros right so when we mess up and we shut down to us markets all of you are going to start screaming right so we've got to be super careful uh innovate with with purpose but nobody is more determined to modernize and reimagine postrate infrastructure in us as much as we are right and the last thing we also sorry this is the last of the last things we also got to be cognizant that not everything will be digital on day one so we have to maintain the old and the new together and apply the same standard of care to the new digital assets as we do to our traditional assets so there's a lot of work to be done but the partnership is strong to get that done Nadin mentioned a lot of challenges there Sebastian and I want to pick up on one which he spoke about is this change some people are scared right there is this sphar that this is a completely massive Evolution from we point of view how important is is it is it and how challenging is it really to ensure the safety of data and ensuring safety in terms of for consumers who are investing or looking to invest in digital assets how how do you ensure to instill that trust and build the systems that ensure that these consumers are safe so first of all we are in a B2B business so our clients are really institutional investors and and financial intermediaries who themselves act on behalf of the underlying uh retail clients sometimes through a multiple levels but but for us I think that the the number one or the the two main challenges are probably around um ensuring that and Marian touched on that uh ensuring that the transition happens not overnight but over time and even imagine if all of us in the room said oh we're going to switch to uh digital assets 100% tomorrow nobody would find the resources to do that so we all have to accept that it's going to be an evolution rather than a complete Revolution and that's where it's super important to ensure that connectivity between the new world and the old world and the Legacy world so and that's where Financial Market infrastructures can actually play that role as we go through that that Journey now the other thing as well which is very important for the underlying investor is the liquidity because what we've noticed is that through all the initiatives that happen in the digital world and and and I'm sure issuers can talk about it like Dominico one of the challenges is okay great I've issued a new Bond 100% on digital assets um it's 100% uh digital however I don't have the liquidity behind it so how can you ensure that you continue to create the liquidity and that's where again I think that Financial infra Market infrastructure whether it's Swift dtcc or sales that's where we have the the capacity through the Legacy infrastructure that we have built to actually ensure that that liquidity continues to operate otherwise what are you going to do with your digital assets if you cannot sell them that's going to be an issue so let's make sure we continue to build those bridges and that for me are two of the main uh challenges that we cannot ignore Samir I'm sorry you you mentioned something really important the role of the CSD I'm sorry is to ensure a good control location so when we say we're holding a 100 shares of IBM for you you know for sure it's there so now in a world we're issuing a lot of digital twins we're fractionalizing we're moving that stuff over the world the only good controlled location to make sure that your 100 chairs don't become 500 you know erroneous chairs is through our ability to say yes you've got a 100 so there's a legal framework that we just can't ignore right and that's the role of Market infrastructure here which is really important so just to yeah that that's important point you said we've got just two actually less than two minutes left Dominico quickly I want touch on the liquidity point which Sebastian touched upon if you want to add that how do you see that as a big Challenge from where you're sitting it is uh indeed for the for the very reason that that um if you are an issuer like us and you talk to investors uh you know that the market loves a standard Market loves something homogeneous approved tried and tested so one of the challenges that we have in this very fast moving uh space and environment is that for fintech there's so many standards and protocols and uh approaches that are being developed so you need to converge towards something that every investor and go back to the education point is familiar with they understand they they they don't have to get specific approvals uh anytime every time you talk to them uh and this is the approach that we selected this why we we have partnered with Euro clear to to use their platform DF Mi that's been developed which we thought brought the the additional uh value that you know every Bond can travel uh on the new DLT uh technology but also on the Legacy settlement infrastructure and so every investor you know if they want to touch it they don't have to treat it completely as a new product so this brought us to issue one of the if not the largest uh uh DLT supported uh B uh issued so far in the market which we were able to issue in the first place and then tap and and that's been again the first time a DT supported bond has been tapped with the second trench so we hope that there's going to be some time of some type of Market convergence there so that very soon this type of bonds will not treated as some kind of exotic or other new product but something like mainstream I'm going to give the final word to Marian because Marian we have completely run out of time if you can answer in less than 20 seconds one big opportunity you see from where you're sitting from your point of view and one big challenge very short answer please well one one big challenge I would say is the scale um so to make sure what exactly what domino was saying um to to make sure that you know digital assets are uh becoming mainstream and that we can scale and and scaling will imply interoperability because if you have just you know digital Island here and there you cannot scale you need to have uh the ability to to transfer assets and to to move assets across across the board uh through uh the the same or or you know same infrastructure I would say so this this this will be very important and it cannot be an afterthought and what we we see is that it's you know interop interoperability is always is is um not systematically but usually thought as an afterthought and and there comes it's it's more difficult afterwards so this is one thing and opport quickly I'm sorry we have run out of time so I have to stop you there but if that was a lot of food of food for thought I think a lot of things that you all touched upon so thank you so much for sharing your thoughts of course a lot of challenges but huge opportunities as well we should touched upon and if the big infrastructure players work together probably it'll be easier to achieve some of those targets thank you so much for joining us on this panel I'm sure there's a lot to discuss a big round of applause for this panel to Deep dive into this issue and give us a glimpse of one of the challenges thank you so much for joining us thank you [Music]