On the eve of Pontes: What changes, Is Europe doing it right and who gets in | EBC12

OK. Good morning everyone. Thank you very much for being here. I am Sumitra. I work for Fiat Republic, a regulated payment provider in Europe, the UK, and Canada.

I look at the calculations from a payment perspective. The topic we are discussing today has a completely different use case than payments. This is an industry that, frankly, I'm still learning about. But our panel is gathered here today to answer important questions about the direction of securities, particularly bonds, in Europe. So, next week, as I understand it, Bondis is launching—a Bondis is launching—a system that allows securities transactions to be settled directly in Target, the ECB's settlement system.

So we want to find out what exactly will change from an operational perspective next week in the short term. Is the direction of development chosen by Europe appropriate? How does this compare to what the rest of the world is doing? And finally, a little about the participants. A MISP service package is being prepared.

What does it change for the long-term future of this industry? So, with that in mind , I would like to begin introducing my panel. Bart, please introduce yourself. Yes, thank you very much. My name is Bart.

I work at KfW, the state bank of Germany. We look at several factors in the field of DLT and the future of digital finance. For example, we are seeing huge changes: over the next 10 years, approximately 16.5 million people will leave the labor market, and only 12.5 million will enter the workforce.

So this demographic shift will lead to more automation, and I believe DLT can be one of the solutions be one of the solutions that will help us overcome the current problem. Thank you. Thank you very much for inviting me. I am Christophe. I lead the digital asset tokenization direction at Union Investment.

We are a Union Investment. We are a German asset management company. So, what is our vision? So, in a few years, DLT-based tokenization of securities will become the new norm. We will no longer talk only about digital or physical global documents as a securitization format.

Smart securitization format. Smart contracts will play a key role. Programmability of assets, programmability of cash, making assets and money "smart" and money "smart" . As asset managers, we have fiduciary obligations to our clients, to thousands of our clients. Therefore, it is imperative to prepare for a DLT-based financial market infrastructure to provide best-in-class services not only today, but also in the near and distant future.

On the other hand, as one of the leading asset managers in Europe, we play a key role in building the infrastructure to ensure a sustainable, competitive and sovereign Europe in the financial sector. And this is also a role we are happy to play. Thank you, Christophe. Martin? Yes, thank you very much for the invitation.

I represent Regulated Layer One. My name is Martin Müller, I am the chairman of the supervisory board. What is Regulated Layer One? We want to become Swift 2.0 for the DLT world.

We are a for the DLT world. We are a cooperative that was just established in Luxembourg. So far, 10 banks have joined our initiative, and two or three more are expected and two or three more are expected . There could probably be 20 of us by the end of the year. And Regulated Layer One And Regulated Layer One is literally our name.

As you all know, in the cryptographic and digital world, we talk about four different levels. We work as a basic infrastructure, a kind of common level on which everything else can operate. We deliberately chose a cooperative structure, together with other banks, because there are many well-known examples of member-owned initiatives working effectively as a service infrastructure. We believe that a non-discriminatory and compliant network compliant network is exactly what will help the industry grow and scale. Because at the basic level, there is no point in competing.

You have to compete at all other levels that are higher. So, as we have already started So, as we have already started , we now have the largest institutional blockchain network in Europe. And we think, as Christophe said, we talk a lot about digital sovereignty in Europe. Many new initiatives are emerging now. There is a German-French consultation, which has now expanded to six countries.

There is significant momentum in the regulatory arena, as well as a growing understanding among policymakers that a competitive regulatory framework is necessary to keep pace with the US and other regions. We believe there is a right way, but ultimately it takes the right infrastructure, and that's what regulated Level 1 as a foundation really means. Thank you, Martin. Body. Yes, thank you, Martin.

Thank you for inviting me. My name is Tilo Deambach. I work at the German Stock Exchange, specifically in the post- trade sector called Clearstream. Clearstream is a financial market infrastructure for post-trade transactions in the German market, the Luxembourg market, and, in fact, in the Eurobond segment, as we call it. Our mission is to help financial markets transform and move from the traditional world we all work in today to the digital era.

And in order to do this, we, of course, have to become more digital ourselves, and digital doesn't necessarily mean, but first and foremost, means supporting blockchain. This is the path we are taking This is the path we are taking to support the 2,500 banking organizations that are our clients today. And we have to do it in a way that allows them to move at their own pace, in their own time, with the types of businesses, types of customers, and assets that they want to move from the traditional world to the new one, because they won't spontaneously move from one to the other. It will be a journey, and we want to support them on that journey. And I think, going back to today's topic, money, cash, central bank money, and also commercial bank money are part of that equation.

It's not just about assets or securities that are tokenized and then circulated on the network. It’s the ability to move an entire ecosystem—customers ecosystem—customers , types of businesses, and types of assets and types of money—to the blockchain, and wholesale CBDCs are a key and important part of that. Thank you, Body. So, gentlemen, at the risk of sounding too naive, I think, as a neutral observer, I see your world as if there are two components to the transaction. There is an active component that is already largely digitized.

It is based on distributed ledger technologies. I think you guys are obviously into that part. And then there is the monetary component. As far as I understand, starting next week, thanks to Pontus, monetary settlements will be able to be linked directly to the ECB's target system, which means the possibility of truly atomic settlement on a "delivery versus payment" basis within a single block. Therefore, the same DLT same DLT transaction that moves assets can be linked to the movement of euros in the ECB system.

If that's clear, Tilo, since you're closest to Pontus, tell me what will change operationally for Clearstream from next week? It's funny how you work for years for moments like this, and then it just happens, works, moves on, and functions. It might be worth taking a quick look back at where we have come from on the journey to wholesale CBDC, all of us here wholesale CBDC, all of us here , on the panel, and of course, present in the room. It all started when the ECB began its tests and experiments between May and November 2024, it seems. That is, about two years ago.

And a lot has happened since then. Many tests were conducted. A lot of experience has been gained by many market participants using various technological solutions to enable the processing of digital, or more precisely, on-chain, more precisely, on-chain, central bank currencies for wholesale settlements. Everyone was experimenting and thought that this would replace processes in the traditional world quite quickly. And today we see that tokenization, as well as on-chain as well as on-chain transactions of securities, not to mention payment for them, still remain relatively limited.

This is not a problem, it is simply a reality, although the process has accelerated significantly during 2026. So, when Monday comes, we'll see that operationally, not much will change for us. We still process about half, if not more, of our cash in central bank money for our clients today. And now we have a digital version of that so we can actually supplement the active part that you mentioned with a monetary component on the blockchain. Will we see hundreds of thousands of such transactions on Monday?

No, we won't see. Is this a problem? No, that's not a problem, because I was talking about a journey, and it remains a journey. So, on Monday morning we will come to the office; we tested all of these things with our clients, many of whom may also be sitting in this room preparing for this. So the market will be ready.

The market will be able to use and initiate payments in T2 using wholesale CBDC, of ​​course. But this is only one side of the coin. We need more securities to be issued on the blockchain so that over time more wholesale central bank money can be used. This is a call to action for all of us. We are part of this journey and it is a call to ourselves, but I would say that on Monday morning it will be a relatively ordinary morning after 2 years of preparation to get to this stage, but it is very important.

I'm not sure if we'll come back to this later, but I think having a wholesale CBDC in Europe is a very important component important component , because again, securities processing in Europe is largely done with central bank money. Of course, there are also solutions based on commercial bank money internationally, but in my opinion, not having a solution based on central bank money on blockchain would be a mistake, and we are very happy to see that the ECB has advanced to this stage and will develop, well, the Pontus project to an improved project, to APIs, etc. But it is scalable. This is a normal job. This works and will scale over time.

Thank you. Perhaps I should add that I find it very remarkable that the ECB chose this path because it is a pragmatic approach. This is not DLT 24/7 in the best of all worlds and, you know, a cloudless future. It might come later, but they just took a pragmatic approach and said, " approach and said, " Okay, can you actually combine an existing system with a DLT-based asset?" Okay, that works.

And this reduces the calculations to 2 minutes. So it's not instant, you know, but it's already there. And that is why we can gain experience. We can, and let's face it , most regular traditional players can't even do interest calculations throughout the day. So what are these products?

Yes, that's why this idea that everything has to be perfect doesn't work. So, in that respect, I really think we should envy the ECB, which says, "Okay, let's take a pragmatic approach and then see how it works out." And so they have already said: " they have already said: " Okay, we need to see when we get here, when we get to the ideal version, then we need to see whether we as the ECB should build this infrastructure, or whether we can find a distribution solution;" that is, does the market provide a solution that they can actually join in some way?” And that's really what adjustable level one is. We want to be a kind of element through which the ECB can distribute its wholesale CBDC, because we are convinced that it is better to have a market solution than for the ECB to build the entire infrastructure on its own.

Well, that, that, that makes perfect sense, Martin. And, just continuing this thought a little further. So, along with Pontus, there is also a DLT pilot program, right? Here is an example of how the ECB may not fully understand market demands— there are certain limitations to this program. So, for example, the limit is 6 billion euros, as far as I understand.

Is this another signal that the ECB should listen more to the market and not decide alone? Yes, Martin. Yes. I really think that the European regulator has seen its shortcomings and that it will fix this problem, because frankly, apart from 360X, no one has really participated in the sandbox, because it is clear that with such a minimum limit you will not be involved. So, practically speaking, I predict they'll just take it away and say, " and say, " Okay, it's not a sandbox anymore."

This is the DLT version.” And then, of course, you know, there will be new players in the post-trade and trading arena , and we will have the usual regulation usual regulation . But I don't think the sandbox itself will survive with this restriction because politicians have seen that it doesn't work. And I know most people say, "Well, Europe is so fragmented and so slow." Two years ago, people in the US were saying, "Okay, at least you have regulation and you know what to work on."

So at the time when it was Mika, it was, "Okay, now it's changed because of all this momentum that's, you know, coming from the US." But I really think, given that we have, you know, 27 different states, yes, we are moving in the right direction right direction . And, um, Christophe, your opinion as a participant in this market, what do you think about it? I would agree and disagree with Tilo to some extent. So, from an operational perspective, Body, Body perspective, Body, Body , you're absolutely right, because over the last few months, years, we've done our homework extremely well.

We are prepared. Therefore, operationally, we are all ready to enter the Pontus era. From a strategic perspective, in my opinion, Pontus is a truly pivotal milestone in our journey with DLT here in Europe. And this is also a key difference we have compared to Americans. And, in my opinion, a clear unique advantage is also that, as you probably know, in the US we have a law that, on the one hand, promotes the existence and implementation of stablecoins.

On the other hand, we have a law against CBDCs that is valid until 2030 and does not allow the Fed, as the US central bank, to issue either retail or wholesale CBDCs, which is what we are talking about CBDCs, which is what we are talking about when it comes to Pontus when it comes to Pontus . And from a financial market stability perspective, please don't quote me, but I think what the Americans are doing Americans are doing is suicidal, relying entirely on private sector solutions (i.e. stablecoins and tokenized deposits) and not having a central bank as a key stable anchor ready to respond when the economy hits rough waters. Just to give an example: Circle during the Silicon Valley Bank crisis, USDC was trading at 87 cents on the dollar.

And obviously, as an asset manager, you definitely don't want to have positions in stablecoins during a financial market crisis, when it becomes harder for us to manage portfolios or harder to see your cash position depreciate. I think depreciate. I think in Europe we are much better prepared when it comes to stablecoins, given the fact that we have our own approach that we have our own approach , it's a kind of " , it's a kind of " gold-plated" stablecoin that we call EMT, electronic money tokens, but, um, we definitely need to have a central bank as a key anchor bank as a key anchor , and that's what we have here in Europe. And that's why I think that from a strategic perspective, um, the launch of Pontus is really, um, a key starting point that highlights the role of the public sector in advancing our journey with DLT. Regarding your questions about thresholds in the DLT pilot, as we know in MiFID we will get significantly higher thresholds, while MiFID II is expected to come into effect sometime in late 2027, which is still over 12 months away.

And in the meantime, there are certainly workarounds, because the limitations that you have with DLT-based trading platforms are not there when you use a settlement system within the DLT pilot regime, called SS. So theoretically you can just trade on a traditional MTF, having settlement instruments through an SS-licensed firm under the DLT pilot regime , and then you will get full trading capability. And I am really sure. So, as Union Investment, we were part of the Pontus Contact Group at the ECB in the past and are also a member of the new Upia group member of the new Upia group . And at one of our last meetings, we had a kind of " we had a kind of " round table" where we discussed with over 40 participants plans for the next 6–12 months, and it's really promising.

We are moving away from cases of 50 or 100 million, and I am very confident that in continental Europe we will also approach the reference sizes, where we are talking about half a billion or a billion or more. The dimensions that we are already observing, for example, in Asia. The Hong Kong government is going DLT-based again right now, for what seems to be the third or fourth year in a row, and last year they placed $4.5 billion. So scalability will come, and I'm really confident that in confident that in 6–12 months we will see significant adoption of DLT in finance.

Thank you. But, as I understand it, your opinion is from the issuer's side. So, maybe I'll talk a little bit about our learning experience, what we've done so far , where we are now, and what our thoughts are on the points you mentioned. We began in 2016 by looking at the work of the Treasury, including what will change in 2017. We simulated a deal with Commerzbank and Maersk, which acted as an investor, we were the issuer, and we saw that we did not have a payment instrument that matched our risk appetite.

You know, we usually have volumes of 3 to 5 billion. In 2017, IFA was at the level of 25 billion. So if we were to do the calculations on air, it wouldn't work, you know, because of the volatility, it doesn't make any sense. So we had to have a safe asset. On the other hand, in Germany we did not have a law in 2017 that would allow us to issue bonds of the volume we need without a physical document, and you cannot conduct a blockchain transaction with a physical document.

So it was a simulation of the deal. However, through this, we realized that the money side had to be settled and the legal side had to be resolved. In 2021, the Electronic Securities Act was passed and implemented in Germany, and this helped from the regulatory side, on the one hand. But on the other hand, although the ECB started with a retail CBDC, they decided, I think because of the emergence of stablecoins in the US, to look at the wholesale level as well , and it looks like they've already passed the retail CBDC stage, and the wholesale CBDC will be ready wholesale CBDC will be ready , as we'll see next week. In general, looking at trading volumes, as KfW, we usually have two characteristics that our investors value.

We have a triple-A rating from the government, on the one hand, and a very liquid secondary market. And in the DLT sector, where we have already issued three bonds ranging from 50 to 100 million, this was done not for refinancing purposes, but for the purpose of learning and understanding what is happening. As for the volumes for the secondary market, the limit of 6 billion does not suit us, since we issued 18 billion in January alone. Therefore, we could not use any secondary market with significant volume for this. So, we warmly welcome the upcoming discussion on the MISS package.

I think the amount discussed was 100 billion. I think Ireland is currently investing between 300 and 500 billion. This is the billion. This is the first thing, and I would also like to emphasize that regulatory clarity on certain issues is very important. There seems to have been a discussion that it was supposed to last three years, possibly with an extension of three years.

Then we heard, no, that wasn't planned at all. So, it was supposed to be for an indefinite period, and such arguments are inconsistent, and there are communication problems. I think it doesn't help the market it doesn't help the market , and we've seen it in other cases where, for example, the Basel Committee has proposed certain rules to implement this in Europe. I believe they have found a good path now, but the constant postponement of implementation deadlines, and now the actual complete cancellation, at least for the time being , does not help the market to structure deals. To give an example, if we are trying to close a deal, we always look at what the limitations are, and if something is unclear, we want to finalize certain things.

For example certain things. For example , the last transaction we made was in June of this year. It will last until approximately December 27th until approximately December 27th . In December of this year, we will use Pontus for coupon payment and redemption, and we did so only for such a period due to some uncertainty regarding the DLT operator. So, it is unclear what license is required to work within Pontus enhanced, that is, the second stage of Pontus, and this ambiguity has led to the fact that we cannot conclude a three-year agreement.

She was only there for 18 months due to unclear instructions. Thank you. Thank you for that. And that brings us nicely to the next question I had for all of you: there is a natural tendency to look at what other countries and regulators are doing in your field. So, Body, maybe we'll start with you.

Europe has clearly chosen the path of payments in central bank money. Sorry for the wording, but that's how I understand it. How does this compare to, say, the path that the US is likely to take, or Switzerland, Singapore, or any other major markets? I will not repeat what you have already said , because the strategic advantage strategic advantage that Europe has gained by choosing the path of implementing a wholesale CBDC is difficult to overestimate in a global and competitive context for infrastructures and markets. Let's just look back, or, excuse me, briefly reflect on what we're talking about.

We're talking about the wholesale banking market, where—and this is something we do n't encounter in our daily lives— interbank transactions are largely conducted using central bank money in Europe, as well as in the US, but let's focus here. We, as an organization, believe that not offering such a solution just because of the transition to new technical rails would be a big mistake, and I personally believe so too . Therefore, it is important to ensure the availability of wholesale CBDC on the blockchain network. We see 300 million securities transactions. Our organization alone holds 22 trillion in assets, largely serviced through central bank money.

If central bank money were not available online, much of this business would likely not have migrated to blockchain. So these are all pieces of the puzzle for us, for Europe, to remain—I hope—and become more competitive on these new technological tracks. I think this is very important. And without such environments, the benchmark bonds that some of you have already mentioned would not appear on the blockchain. But we need liquidity in the network, because transactions or issues of 50 or 100 million are fine, but Barclays will execute a transaction of 800 million in one payment order instantly, in an instant.

Therefore, the releases and volumes in question are actually insufficient actually insufficient . We need to attract institutional players who use risk-free money, as we consider central bank money to be the least risky compared to tokenized commercial bank money, such as deposits or stablecoins. All of them would be considered at least a little riskier. So, this is the best quality you can have. Not using this, not having this available—I would find it difficult to imagine our banks transitioning, but also in a competitive environment having this available—this is, I believe, the strength of Europe because of this quality, because of the volume, and because of the market reach that we have by using this.

Yes, I'll stop there. Thank you. This can be summed up very simply. The retail euro is trying to solve a problem that doesn't exist. The institutional euro, a wholesale CBDC, truly solves the problems of instant payments and all other issues.

You may not quote me, but personally I think so. This is exactly the comment we were looking for. But Martin, continuing on this topic. As far as I understand, a similar structure operates in Switzerland. Are there any regulatory lessons regulatory lessons that the ECB could learn from Switzerland's experience in implementing its program?

Do you think there is nothing to learn there? It's always useful, you know, to go through the learning journey together. And right now I know of at least five central banks that are trying to come together to find solutions for digital repos, digital systems and their connectivity, etc. So connectivity, etc. So , I think there's a lot going on behind the scenes that is n't talked about.

At the same time, as you can see, the Swiss have a state-of-the-art ecosystem and regulation, but they live in remarkable isolation. So it's great if you can implement it in Switzerland, but it won't help the rest of the world. Ultimately, you have to be compatible, and that's what's key, and I'm pretty optimistic that we're moving in that direction. And when you see other initiatives like Global Layer One that haven't quite come out yet, it's clear that agents are trying to find a solution that's compatible with others. And I think the US, and most of the American banks American banks I've spoken to, understand that a one-size-fits-all solution is not appropriate here.

Because, of course, they just have an oligopoly, it's easy. But they see that working in Europe requires different solutions, and so they are also closely following what is happening here. Thank you. Christophe, very briefly, this is a slight change of topic, but again, within the limits of regulatory clarity, right? Obviously, you all represent fairly large institutions from the traditional financial world.

If there are any mid- sized asset managers, do they suffer from the same lack of clarity? What are their options? How should they view the development of this system? I think we, as an asset management industry, are going to have to prepare ourselves to serve clients in a future world dominated by digital finance. On the one hand, we are competitors, and on the other, we are partners.

So, in addition to my role at Union Investment, I also lead the tokenization working group . We have a firm that represents the interests of buy-side companies throughout Europe. That's why we are very active: sharing ideas and experiences to ensure readiness not only at the level of our company, but also at the level of the entire industry, so that we can compete with America and the Asia- and the Asia- Pacific region and have a highly competitive Europe, as I mentioned. I want to share some numbers from a presentation I recently prepared recently prepared analyzing the technology sector in America over the past 25 years. So, the "seven" largest companies and the rest of the technology industry in the US provided 1% GDP growth annually.

Whole percentage of GDP growth. What has been the average GDP growth in America over the last 25 years? Probably 3–3.5%, so the tech sector accounted for a third of GDP growth in America. If we look at the similar indicator in Europe, we are talking about 0.

1–0.2%, that is, 10% of what was achieved in the USA. This is why it is extremely important to look at digital transformation, or rather, digitalization, given the breakthroughs brought about by AI, quantum computing, and distributed ledger technologies. So here in Europe, we really need to realize the urgency of the situation. This is not just a "nice addition."

This is not just copying what we did in a traditional industry into a new, technology- driven field. The customer interaction interface will change significantly. Products will also change significantly. Today , as asset managers, we usually talk about fixed income instruments, stocks, multi-asset and real estate funds. In the future, when looking at tokenization, you talk about democratization through fractional ownership that tokens will enable.

It will be possible to create savings plans for retail investors. If you have an appetite for risk, you can invest in alternative assets or infrastructure projects. We all remember when Draghi unveiled his plan about 2 years ago, where he talked about the 800 billion euros needed to really prepare Europe for the years to come. And it needs to be financed, and it also needs to be financed with the support of retail investors. And that is why, when we look at DLT technology, we see that it is not simply a “ simply a “ bottom-up” issue.

We tokenize bonds. We use smart use smart contracts, which allow us to recreate the entire life cycle of a tokenized bond. We really need to see the big picture correctly. And it doesn't matter whether you are a large, medium or small asset manager. And this is where we must cooperate.

After all, we are all in the same boat. We want to make sure that Europe becomes competitive competitive and our customers receive the best service. And that is exactly what we are working hard on are working hard on . Thank you, Christophe. I had a question for you, but I'm very limited on time.

We have about 2 minutes left. So, gentlemen, 30 seconds for each of you. Could you very briefly summarize the direction that MAS and APiA may take MAS and APiA may take and your thoughts on it? Maybe you'll start first. Yes, thank you very much.

Ahem. I think, you know, there is a perfect term in English— perfect term in English— digitalization. I believe we should see this as a digitalization effort. So, rethinking new processes with new technologies, because changes in the capital market are nothing new to us. You know, from the 80s to the 90s, we went from paper to separate digital " separate digital " silos" that we now have to reconcile through a trusted partner.

Now we have a chance to build a new infrastructure, essentially, based on shared data and shared platforms, and it is on these platforms that we can compete. Therefore, it is very important to rethink processes, as technology allows it. There are certain risks associated with this, but other risks disappear. So risks disappear. So , we need to see how this works.

Thank you. Christophe. We've seen many industries in the past, many successful traditional companies, screw traditional companies, screw up when it comes to transformation. Look at the German automotive industry. Look at Nokia vs.

Apple. Hundreds of examples, and I think here in the financial markets industry, and also for us in the asset management industry, we are a very successful industry right now, and let's just ensure that it stays that way, and, um, let's get serious about the aforementioned AI, DLT, quantum technologies quantum technologies , and going back to Pontus here again. The ECB has done a tremendous job, what they have achieved in the cooperation between the private and public sectors in the last two to two and a half years, and here in Europe we are absolutely on the right track, and we are not the little brother or sister of the Americans. I think that here in Europe we can really do things right. Thank you.

Martin. Let's just work with what we have and stop criticizing Europe for what it doesn't do. So, I think we are on the right track. Would we like everything to happen faster? Certainly.

But let's face it . I mean, it's better to work with 27 countries, and that's the only chance we have. Also, truly reflecting our market power, rather than just criticizing ourselves and saying what we're not good at. So, I think for me the glass is half full, and by moving forward with regulation and other implementation, we can really make DLT work as well . Thank you.

half full. The body, finally. You all loved listening to music, and the older ones listened to it on records, the younger ones on CDs, and now everyone just streams it through Apple Music or Spotify. And the same thing is happening in the financial industry financial industry . We are moving from a paper environment and stock market calls to a more modern, digital, predominantly blockchain- blockchain- oriented environment.

And we need financial markets to continue to function, but we need to move them from the old traditional world into the new, let's say, digital age. And without a cash component, securities transactions simply cannot be performed unless you conduct them without payment, which is not the norm payment, which is not the norm . So, digital cash is one side of the coin that is needed for financial markets to work. Wholesale CBDC is a central and integral part of this cash component. And from that perspective, I will simply say that as markets transform, wholesale CBDC will be much more widely implemented in Europe.

We'll see if what we think delivers a real competitive advantage comes true competitive advantage comes true , but it's important, it's in the spotlight, it has to be part of the solution. Otherwise, the user will not use it, will not use the music app, will not use the financial system. Thank you. Gentlemen, thank you very much for such a fascinating conversation. I learned a lot, as I'm sure our audience did too.

So, please give our panelists a round of applause , and thank you very much . Thank you.