At the Global Funding and Financing Summit, Deutsche Börse hosted a panel discussion on the future of digital securities. (Photo: Maison Moderne)

At the Global Funding and Financing Summit, Deutsche Börse hosted a panel discussion on the future of digital securities. (Photo: Maison Moderne)

The regulatory framework provides a competitive advantage as it allows market participants to develop interconnected infrastructures and was the topic of discussion by a panel of industry representatives at the Global Funding and Financing Summit in Luxembourg from 13 to 15 September.

A significant portion of the world's wealth is stored in illiquid assets, notes published on 12 September, the result of a partnership between Boston Consulting Group (BCG) and the digital trading platform for private markets ADDX. These assets include IPO-prepared stocks, real estate, private debt, SME revenues, and art.

The report states that these assets are illiquid, notably because of their limited accessibility outside of sophisticated investor circles, the complexities of wealth management expertise and the difficulty of acquiring or trading them. An asset is considered illiquid when its holder cannot easily exchange it for money.

The tokenisation of these assets via blockchain could provide a solution to their illiquidity problem, says BCG. While this market is still marginal with an estimated $310bn equivalent by 2022, forecasts are exponential. The global market for tokenised illiquid assets could reach a total of $5.2trn by 2026 and $16.1trn by 2030. BCG even goes so far as to say that the market for tokenised assets could represent up to 10% of global GDP by 2030.

Beyond its potential, the market for tokenised assets must first navigate regulatory uncertainties that vary from one jurisdiction to another. The ability of regulators to provide a clear regulatory framework for market players is becoming a competitive advantage across different regions of the world.

The benefits of regulation

At the organised by Deutsche Börse Group in Luxembourg from 13 to 15 September, a panel of industry representatives discussed this very issue. "From a European perspective, we have the Digital Finance Package which has really moved things forward," explained Maha Al Saadi, compliance and regulatory affairs director at Bankhaus Scheich/Tradias. Proposed in September 2020, the Digital Finance Package sets out general guidelines on how the EU can adapt its regulatory framework to support the digital transition of financial services.

The Mica (Regulation on Markets in Crypto-Assets), for consumer protection and harmonised access to crypto-asset markets, and Dora (Digital Operational Resilience Act), on technology risk management by market participants, are part of it. On that note, "Europe is leading on this issue (...) and will have a truly harmonised approach for all 27 Member States," said Maha Al Saadi.

Jens Hachmeister, Managing Director of Deutsche Börse's Issuer Services & New Digital Markets division, shares the same opinion. However, he has some reservations. "The concern I have in Europe, however, is that we have probably been good at regulating the infrastructure parts, but there is also a need to look at securities," he said, before pointing out: "We don't have a European passport for securities. So what we do at home (Deutsche Börse, ed.), we do with a German solution based on German securities law."

A question of vision

Both the regulatory framework and the technology should therefore enable the same vision. "We are building networks on a global scale. (...) And the question is what is the benefit of the next digital network. It's really the idea that we can move towards an instant solution for securities services, which should allow market players to create even more products to be distributed directly, to really create the inter-linkage between the different market players," says Jens Hachmeister.

In this vision, Jens Hachmeister does not see a "disintermediation" of the market. "I believe that the market players, as they are today, retain their roles, but have new opportunities by connecting to this infrastructure," he said.

The stated objectives of the Digital Finance Package are to "speed up cross-border operations", "improve the integration of financial markets in the banking and capital markets union" and ultimately "strengthen European economic and monetary union" by the European Commission. The implementation of these objectives should not lead to any other result. As the Brussels executive reminds us, the strategic autonomy of European financial services is at stake.

This story was first published in French on . It has been translated and edited for Delano.