How to Increase Transparency in the Digital Asset Space | European Blockchain Convention 9

[Music] 2 1 hi good morning or good afternoon now everybody uh my name is meline boy and it's my absolute pleasure to be back at the European blockchain convention today and to be moderating this fantastic panel on how to increase transparency in the digital asset ecosystem so we don't have a huge amount of time so I want to kick right off and ask the panels to the panelists to introduce themselves uh W if we could start with you please hi everyone really nice to be here I look after the Innovation and digital Asser products for standard charted Bank financing and Security Services um I cross I'm across all the group entities uh based out of the UK um really good to be here hi um my name is Dennis DF um I'm the product owner of DTI in digital token identifier Foundation um our role really is to issue um ISO standard identifiers for all the fungible digital tokens hi good good afternoon everybody Stefan dryer uh managing director at the association of national numbering agencies or Anna um so we are Global member Association trade Association um for uh Financial uh reference data standards identification standards we have 120 members global representing key Market infrastructures such as stock exchanges Central Securities depositories central banks Regulators uh and data vendors thank you very diverse panel I think which is lovely for the topic that we have here today so um I want to kick right off and we car lean into your institutional perspective a little bit here um and ask you to give your view for the audience's benefit on why transparency is so critical to the development and particularly the growth of this space uh a it's a question that we've been talking about for the past few years it's it's constant right so um talking about crypto side for example um it's um an asset class which is transportable globally but once you start integrating a crypto infrastructure into traditional Financial products those products need to be integrated within existing financial institution systems to be able to do that you need to be able to identify it track it be able to Value it Etc right so some of the constructs around crypto assets make it easier to do but when you start talking about toonize real world assets and these are coming out of various technical experiments within Consortium of banks asset managers um the need for those assets to be transportable from one entity that the next is quite important for that to be enabled you need to be able to identify it you you need to be able to track it after it's been identified and you need to be able to Value it for an entity like us uh primary primary business of my uh area of concern is custody so when we custody an asset we need to be able to track it end to end and with blockchain comes the additional benefit and the burden of finding out the whole transparency behind the asset so we can see from the Genesis all the way to where it's landed so to be able to identify entities as well as the asset from start to finish and making sure that we have the right asset from the right place and for the right client it becomes Paramount um with Open blockchain Standards it's difficult uh to assertain because everything is uh pseudonymous you can't really identify people or identity uh but to be able to get to a point where we understand where it came from where it's going to go to and uniquely identify each asset class is going to be quite important for us yeah I can imagine I mean that's a theme that came up very much so in the last panel as well when they were talking about digital securities the the digital Securities piece but then also the cash leg to sit hand in hand and H to the similar analog having the existing infrastructure existing assets um and the tokenized piece that's sitting on the side of that they need to work together in tandem which I think is going to be a theme throughout the panel so uh just give us a second to get there but before we move on uh Dennis and Stan was there anything that you wanted to add to that um I think like like Waker said you know it's um the identification of the of the asset is is um probably first step of setting up any standards before you kind of start classifying it or settling it or put it in custody you need to know exactly what that instrument is and the um the the identifiers we have in the crypto world right now like U BTC or eth or any of those those are just um thickers that you know somebody came up with they're not unique anybody can create a token on any blockchain with the same uh three three uh letter code um so what what we do with the with d me what we do with DTI is that it's um identifies asset uniquely based on the um on the underlying technical information of that of that token um so I think once that's done then you can start building on top of that other standards around what is it in terms of is it stable coin is it asset based token and then build on top of that you know the um the the standards around smart contracts but you need kind of that first step down first yeah um so I would agree the and I think the this identification of what it is that we're talking about is integral to the way that um firms work in the capital markets so it goes through all of the the the various different processes from your data basic data management back office um risk management uh really understanding where your exposure is that additional so that identification feeds the transparency which then further feeds the the trust issue so trust was uh spoken about in the previous panel quite a bit you know how do we get investors to understand um and trust in these kind of new assets these tokens um and what does it actually mean so identification as a first step and we'll talk a little bit more hopefully in the panel about some of the the work still to be done um in terms of standardization yeah absolutely and I I love you bringing up the the theme of digital trust because I think it's absolutely a pillar to to the conversation today but I think I mean we talk just now about why it's so important but as the industry is developing a lot of technology is being built what are the challenges that we're still facing at the moment to enabling that transparency and fostering that trust with uh with consumers and and The Wider industry so um Stefan maybe you you want to carry on on that train of thought yeah um so I I can maybe reflect a little bit on what Anna has done so the the previous panel they talked a lot about the the digital security security tokens um and for us um it was really a question of understanding starting out coming from a traditional Finance where we're sitting here looking at at bonds and shares and funds um we knew what those were our national numbering agencies were assigning the international Securities identification number to them um and then the question came up you know what is do this DLT um mean what is a digital asset what's the difference between a digital asset and a crypto asset so all of these kind of questions coming and trying to really understand that um and so we came to some conclusions that what something is um so these traditional assets the fact that you have some application or of of DLT um or blockchain for the issuance of that doesn't inherently change the nature of what those things are but people don't necessarily understand that because it gets lumped in this kind of big digital asset crypto asset and it's hard then to distinguish so we see two activities we see that um sort of tokenization aspect but then we see the emergence of a new asset class so the the the stable coins the cryptocurrencies and what what does that actually mean those things that are native uh to uh to a ledger um so the identification I think is is one aspect and we've taken that and we're looking to expand the scope of what we do with the is identifier to include this new asset class so uh Bitcoin getting a and I um something that we've heard a lot about and the whole family of of other tokens um but also understanding and acknowledging that the existing uh standards even though they must evolve as the industry evolves don't necessarily fulfill all the functions so they're fit for purpose but there are additional needs with the technology um and that's where kind of our collaboration with um the the DTI comes in do you want to jump in with a dti's perspective here I think it would be quite fitting yeah sure so um so DTI DTI and is are are two separate standards but they kind of fit together so where where DTI comes in is it it captures the technical implementation details of the token to uniquely identify that particular token um so taking an example of something like tether uh it's it's one asset this this tether stable coin uh but it's um created on at least a dozen different blockchains so from the DTI perspective that's a 12 different identif identifiers we can group them together and assign one is uh because that's at the asset level it is one asset but at the underlying kind of token level it's multiple tokens so I think that's where the sort of the um complementary side of two standards come in yeah and we'll we'll go into more depth around that a little bit later but Ward just before we move on is there anything that you wanted to close off on the challenges of of building transparency yeah so I mean for us it's going to be a game changer I mean people may not see standards as something that is an absolute killer need in the Market at the moment but I'll tell you something very unique about these assets Vis A V what we do as a custodian and what it needs to have a really scalable Network globally so when you start talking about hundreds and thousands of assets being tokenized and millions and millions of transactions going around using smart contract technology automatically identifying what the DVP the P leg is versus the delivery side having standardized nomenclature for the security or the asset with the p side where the payment comes from is going to be absolutely Paramount without that no Financial system will be able to SC scale these things to be able to develop standards like these guys are developing at the moment is actually right at the center of the scalability that we were talking about and the adoption that the previous panel was talking about is not going to go anywhere until we understand how do we Define these things and how do we connect them interconnected nature of financial assets so to use the previous panel's analogy about the bouncer at the entrance of the disco club you have standards on one hand and regulation on the other which is music to my ears working for trade Association that aims to promote best practice standards for digital assets um but we're very lucky to have here today amongst our panelists examples of Industry collaboration that are coming together to actually build these fit forp purpose standards for the ecosystem that we're talking about so Dennis and Cen if I can ask you to talk a little bit more about the collaboration me you gave a fantastic introduction but Walkers through the process behind which you ensure that existing identifiers are compatible with with new identifiers as they're being built and what is the beyond what the value proposition is you know what is the added layer value that GTI brings to Ian models already okay s um so we the the GTI standard was published um two two years ago uh in September 21 and we at the same time set up um a task force with Anna uh to see how the two standards the traditional is uh and DTI how they can be um how can how we can work together to to make sure that we um we make them complimentary um so that was u a task force been running for two years and um recently we issue issued some findings and and one of them like Stefan mentioned was that um some of the crypto uh tokens um will get their own is uh which are which are driven um kind of in a different way from DTI in a different way like um a traditional I issuance where the um you know there's a perspect that's and the user commit in from the DTI perspective it's does the token exist and if it exists what is the asset and then we can review if that asset gets gets an is uh but it's one of the one of the findings or one of the conclusions of the of the task force and I think there'll be more to come as we continue working I think uh it's important to highlight that you know we as organizations are not just developing these standards in isolation so the the standards that we refer to are part of the um International Organization for standards or ISO um and there's a specific governance framework that you have there and you have many countries um with their national standards bodies sending experts to these working groups and committees to develop these things you have blockchain experts you have financial industry experts and then you have um those organizations which are responsible for um helping to develop to implement and maintain those standards such as Anna for the is standard we are the registration Authority you have DTI uh F DTI foundation for the DTI standard um and so we saw a real opportunity to work together um uh the the DTI had been developed for a very specific Purpose with the um the growing uh significance of digital tokens um isim was there for really about um the unique identification of Financial and referential instruments um but as these two worlds are merging um it was important to understand how these standards can be complimentary and not competitive um and nobody wants to you know when you're uh maintaining standards um replicate efforts right so we it was about having a dialogue understanding and we were part of the the development process of the DTI standard so understanding um you know what uh what would be includ included in terms of reference data in terms of DTI that would complement um what reference data was available with an is and the is is a good transporter of other standards many people may not know but within um the the reference data set of an is you've got uh multiple other ISO identifiers such as a classification of financial instruments which in uh the EU is a requirement for regulatory reporting um you have the financial instrument short name you have the MC code which is the um the exchange or the the the the market on which the asset is traded and you have the legal entity identifier so it seemed a natural conclusion to find ways to in the in the development of the DTI standard include that in there so um Dennis touched on it you have the the is which is there telling you what is the asset you know it's Apple stock it's uh um the the eiib Bond it's a a Bitcoin or some other stable coin uh and then at a high level understanding that any asset could have multiple implementations on different networks on different protocols and that's where then the DTI comes in to complement that so we're and we tried to develop this in such a way that it is also interoperable so if you have an i in that record you have the DTI in the DTI record you can refer back to the I hoping that that will be useful in the processes that um institutions are using um and also the the other benefit most of the infrastructure and Reporting systems are built around an i which has been around for 40 years um so by allowing the I to transport these other standards it means less effort what w spoke about the integration challenges um to make that a bit more seamless and I think that hits the nail on the head in terms of a lot of the challenges that we've been talking about out in this panel the previous panel as well around how how critical standards are to to promoting transparency and ultimately the institutionalization of digital assets um I think you know having covered that we're now at a point where the the standards are being developed which is fantastic but there's perhaps a little bit of a a leg into how industry is able to use that coming from at least from my perspective one being awareness but then the second also just being institutional appetite so uh we're if I can maybe turn to you and and ask well on one hand how can we as an industry mobilize and and drive help drive that adoption but from your perspective what are the the hurdles for at least from A bank's perspective at least trying to understand where the synergies are with your existing business model and how you can adopt them to to push forward the the digital asset product offering yes so it's a very good question I'll give you some context from a practical experience from my side uh what we're doing right now so as a custodian uh we're going to launch our uh digital AET custodian very soon in the next few months and as part of that exercise um as a custodian we operate pretty much solely on isens and leis for infrastructure providers and mtfs so when you have an asset that comes into a custodian the primary systems that are built are around the identifier of the particular asset like an is now if I don't have it I have to reconstruct the world that I have for tradition markets into a separate data set so we've had to engineer from the ground up infrastructure that can identify what the asset is where it's linked to how it gets transported from one point to the next so all that information as a custodian we have to build it now if we have had an identifier or a bunch of identifiers in the market I wouldn't have had to build all that layer because that would integrate straight into our traditional core custody platform so I'll tell you the magn itude of difference so crypto market today is about a trillion dollars give or take the total custody market for traditional assets is between 230 trillion to $300 trillion right so talking about the transportability and linking between the $300 trillion market and $1 trillion doll crypto Market is that identifier Kickstart where some of those assets that are transportable between one lay at an X become acceptable by financial institutions like us and to the degree that it needs to integrate into the traditional rails like the Swift system eventually and any of the uh payment networks uh that are onchain or offchain we need to have these identifiers sitting there being able to incorporate that detail of what the asset is which exchange is listed on who's and from that point of view is the Lei which actually is the most important thing and then of course the custodian that is actually currently holding it potentially and transporting it so without that that detail information it becomes very difficult to scale assets beyond that $1 trillion into that $300 trillion sphere that we actually operate in as a bank I think and uh Dennis and Sian maybe on the sort of supply side here in terms of you developing the technology and looking at institutions like standard charted and thinking we have the solution developing in our hands how are you pushing forward sort of the the message around the fact that you're creating fit forp purpose standards for for exactly what we've been talking about um well these kind of events is uh obviously is one part of that so we need to get that message out that the uh standard is there that we we have a DTI we have DTI in is um we also have a number of you know we have a governance model in in DF where we have a product advisory committee uh and we welcome people to to join it from across the industry and the world um the role for that committee is to um is to advise us on on the implement mentation of the standard so um you know things like we're looking around um let's say how do we add theonomy for example to the to the standard or how do we um do we want to add any other sort of fields that are on top of the existing in6 standard because this the standard is is fairly small it gives you a few fields that are important to identify the token but then we can build on that and add some more elements that are might be interested in interesting to Market participants so we touched on the the education and awareness I think that is fundamental to most everything that's kind of the reason for events like this people come to find out what's going on become aware of things understand you know connect um and and I think that's the starting point that's you know up to us to figure out how to do more of that and how to do that better in raising that awareness um so you know on the the is side we've come from the point of we we have something it is fit for purpose in the traditional World we've established it's fit for purpose in the tokenized version of that world and where the gap for us was was all these new kinds of things right the the Bitcoins and and stable coins I mentioned before um not really understanding and I think you know it's the the challenge that you hear in a lot of the regulatory debates is what they actually are you know are they Commodities are they Securities um so you know there was kind of a thought process there how do we or um expand the scope of what is does can we expand the scope of what is does to um to these things are they relevant are they in scope for for is and um and we did come to that conclusion not necessarily because we said okay it could be an investable thing directly but because it was very clear that it could be a reference for another Financial instrument so so whether it's a structured product in ETF or fund and we've been hearing a lot about um Bitcoin ETFs um recently kind of a new thing um so and that's where you know it helps to kind of aggregate the exposure but um what we knew also is that the is and and the other information that related to it didn't necessarily help to identify or understand specific information related to the risks that the technology brings to the DLT and knowing that TI was specifically built for that purpose that's where we saw that kind of perfect marriage I'll just there a quick point on that I think the criticality of adoption will be based on what the regulator ask you to do right so if I go to regulator and saying I'm going to tokenize and um customize and then distribute a token they should be coming to us and saying okay you need to apply for an is for example before you can do that right at the moment I'm not sure that occurs and that's that's where it should start yeah but we we see some some of that so the in the recent MAA consultation paper they they are proposing um that DTI is used to identify tokens but also to identify white papers so as you know as that regulation changes uh I think it will come to that where Regulators would say get a DTI or or is both uh and then kind of that kicks off the process and uh it'ss of the process of instrument creation they work in Synergy together and they lie really at the F foundation of the institutionalization of digital assets which I think is why a lot of us are here today but I think um there's there's one point here that I just want to touch on a little bit further from s of custody or institutions perspective as a whole is you know once this be this sort of becomes part of the the banks mainstream you know how does that what how quickly is that going to help us from a timeline perspective at least or standard chares perspective build into the next steps what what is the timing looking like for you in in being able to push this forward you mentioned the custody offering that that you'll be rolling out pretty soon but um yeah what what is the overall timing here that the audience might be able to expect I mean for us what's important is that when we do enter a market with our proposition we make the regulatory needs of that market and Regulatory reporting requirements so if our regulator says that yes you can report all the digital assets you hold on uh on your um wallets without an is then we will do as they say if they say you need an is so that we can identify really what this is then we'll do isens and that is an instant that doesn't take time because if it's a regulatory requirement it becomes an imperative for us to meet those regulations now now we can't push that to the regulator of course we can say okay we're adopting this but they'll be like yes and what am I going to do with this because if they don't see a connect with what they do from a regulatory reporting point of view uh Market surveillance point of view uh client protection point of view as well as transparency point of view um individually as institutions like ourselves cannot push a standard however that said that when we do start to look into tokenization of assets we start to service large asset managers going forward we can introduce the concept of how can we standardize the language if we were to move the asset from say ethereum to another blockchain or from another blockchain back to ethereum which is exactly the same asset but moves across different chains maybe there's an identified that is needed to be able to do that right um so for us the speed is going to be with the market we can't be running at a different speed in a vehicle right so one wheel can't spin faster than the others right so we will work with the industry but standards like this when they come to the four do start the conversations with Regulators people who have regulatory obligations to report uh and we will be there to service them that's how that's how we were looking at it and hopefully associations like GBC digital Finance do a good role in sitting in between and and pushing that dialogue forward but um I think since we have actually moved into the regulatory discussion a little bit bit Stefan and Dennis if I could just maybe ask you from your perspective you know what do you think are the the pillars for engaging with regulators and and really trying to to drive awareness around the new standards that you're creating that can help the institutionalization of digital assets so the that is something that we actually do uh quite proactively do probably a bit more focused in you know some of the more developed more advanced countries that have uh kind of first mover regulation uh in the EU and whatnot um I think there's a lot of work still to be done in other regions of the world and I think you know we've all seen and heard about the big debates which are probably more political than anything else on the US side um in in the the crypto space um so I think you know when we look for example if we take uh EU we've talked about or in the previous panel we talked about M Micah wherever you come from um the esma is very aware of the the work that Anna does in terms of I and also in terms of DTI and we have that dialogue there um things like the DT pilot regime and the reporting requirements set out in the rts2 kind of underscore the need for that um my my advice though would be to organizations is you don't have to wait for the regulatory mandate to um benefit from the implementation standards um and if we look at traditional Finance space you know there are many many um jurisdictions which don't have the same stringent requirements of standard identifiers um but they those uh jurisdictions and participants there are involved in uh crossb trading so in order to philate that you need that comma language so there's a lot of benefits to be uh to be gained from from implementation of Standards I touched on it before um really helping to keep down costs in terms of data management um better transparency in the data better quality of data um risk management compliance all of these processes that organizations have to go through that fits in there because you know definitively that you are talking about something and you know what that is you're able to identify it thanks um we are running up a little bit closer to to the end of the session now so um I think if I can just wrap up with each of you and ask for a quick note to conclude perhaps like where what do you wish for in the next year or two years to come the next time we we gather together at the European blockchain convention I think particularly for this panel I think if I was to conclude my thoughts um I'm extremely glad that these standards are being built or they're being discussed um and we of course will bring these up with our clients when they do discuss with us about new products and services um um for us what's important is that when the Coalition the Willing get together to implement the standard then it becomes industry Norm but amongst the Coalition of the Willing is the regulator and the client if the client doesn't understand what is brings to them at this stage because they're completely focused on DLT and nothing else then it's a difficult conversation um but if they are focused on DT with that regulatory imperative and a national numbering Agency for example that says any new security offering in the country whether it's onchain offchain whether it's a private VC Market fund Etc you need to have is plus the digital token identifier attached to it so we can see exactly what this is because those agencies would have to educate the local Regulators I mean I'll give you an example of uh Abu Dhabi where I used to be a regulator for a short period of time I spent about four years there one of the things that I mandated there was that any MTF that comes and uh gets license they have to have an Lei right without the Lei they will not get a license what that did was that streamlined so many operating procedures for us as a regulator and some of the reporting they do now in Europe right it's very streamlined no other regulator actually mandates an Lei or an MTF for crypto right so that's something to kick start with I mean there are forward-looking Regulators in smaller jurisdictions that we can start with uh for us we're happy to facilitate these conversations we will try to adopt them as quickly as we can but uh really looking forward to next year talking about how many we've adopted and how many we have actually listed on our system systems I just just wanted to kind of echo what Stefan was saying as well that the you know you don't need to wait to adopt these standards and I think from what we see from Regulators is that they they love ISO standards um ISO standards are not kind of commercial product there is no license fee there's like you you don't have to buy you know bunch of screens to use that identifier it's not a vendor thing um you know is and DTI are free to use you can download them from our website from ANA website um and you can start using them already and I think um you know it is very likely that The Regulators will use DTI and I for the future for the crypto assets I don't know how long it's going to take uh even with Mika it's sort of confusing timeline with the transition period uh but I think I think it is kinding it's its future so you know you can start getting ready now yeah so you I'd like to take it maybe to a different place you asked a little bit about what what we would like to see I think that the time timeline is very hard to Define and I would say it doesn't I don't think it's important Evolution takes time right it's a process it's not uh you flip the switch and everything's going to be different tomorrow and I don't think we need that things have to evolve at their own pace I'm I'm very happy to see that the topic of Standards albeit not a you know a super sexy or exciting one but it's necessity and that it is keeping up we're able to keep it up now with kind of the the technology conversation with the regulatory conversation um so I would encourage people you know to reach out we want to understand what the needs are what the use cases are so that we can can further evolve not the sexiest topics that we need it so maybe that's a tagline for the panel um oh on that note thank you all very much for your insights um I hope that we can gather the next one to talk about all of the standards that have been adopted uh and thank you to everybody here for joining thank you