A new whitepaper published by the International Securities Services Association (ISSA), provides a practical analysis of how to settle, safekeep and service crypto assets issued on Distributed Ledger Technology (DLT).
Crypto assets: moving from theory to practice is a comprehensive examination of digitisation and tokenisation in the post-trade space. It provides recommendations to maintain compliance and best practices to use standards to maximise interoperability between market participants.
Interoperability and standards
The findings show that the crypto asset market is still very much in flux and that rapid change within the post trade securities industry is unlikely. Instead, DLT networks are expected to develop to co-exist alongside traditional securities market infrastructures.
As a result, DLT networks will need to be able to interoperate and integrate with existing post trade processes and incumbent firms. The report also recognises that standards will need to be developed to help avoid fragmentation across DLT networks.
Crypto assets have the potential to support improvements in the traditional securities industry, notably in terms of efficiency, transparency and possible direct interaction between issuers and investors. However, the lack of harmonised definitions of crypto assets agreed between and across market participants, regulators and legal jurisdictions continues to inhibit the development of institutional grade crypto asset services, especially across national borders.
The ISO 20022 standard, that has defined financial messaging norms in the securities and payment markets, might provide a useful foundation for open standards in crypto asset markets. However, no progress can be made without closer collaboration between all crypto asset participants to accelerate the process of agreeing on business and technical standards.
The development of crypto assets issued on DLT networks could impact incumbents in post-trade areas. There is likely to be far less disintermediation than previously thought. However, this may create new roles within the securities ecosystem, such as DLT network governors and operators. Traditional intermediaries, including central securities depositories (CSDs), central counterparty clearing houses (CCPs) and custodian banks, will continue to fulfil important functions, even on DLT networks.
Understanding the potential impact of DLT
SWIFT was invited to be part of the Working Group that helped inform the ISSA whitepaper’s findings. Over the past few years, we have witnessed the speculation surrounding DLT being replaced by concrete research and development outputs in the form of proofs of concept, simulations and prototypes.
We are working with our community to better understand what impact crypto assets might have on the global securities industry and have been analysing and testing the potential applications of DLT technology to support our customers.
We will keep open an active dialogue as we move from theory to practice in the crypto assets space, and will continue to lend our expertise towards digital assets identification and the maturation of DLT as part of our ISO 20022 programme.
Download the ISSA whitepaper: Crypto assets: moving from theory to practice
SWIFT also collaborated with ISSA last year to produce a series of specialist reports that examine the significance and implication of three key trends in the securities services industry: cyber-security, infrastructure for crypto assets and regulatory developments.
The International Securities Services Association (ISSA) is the Zurich-based industry think-tank, which actively contributes to the development and promotion of forward-thinking solutions that create efficiencies and mitigate risk within the global securities services industry. Through its members, ISSA facilitates and stimulates active communication and - by means of its famous symposia and highly professional working groups - provides leadership in the formulation and promotion of best practices in the post trade securities arena.