Financial market infrastructures (FMIs) hold a unique position to consider supporting crypto markets, offering investor protection and preventing market fragmentation, according to a new whitepaper by The International Securities Services Association, in association with the Central Securities Depositories (CSDs) Working Group on distributed ledger technology (DLT).
The whitepaper highlights the role infrastructure providers are willing to take in the new crypto-assets market, to make it possible for financial institutions to connect and service the crypto industry.
In the whitepaper, ISSA, stated: “The distributed ledger technology (DLT) environment, in which crypto assets are typically issued, has the potential to service crypto and traditional financial instruments in a different and more efficient way.”
It added: “We have a particular position to accompany financial institutions in this transition, leveraging our experience in business and technical standards, as well as in communication. As such, we can enable interoperability and avoid market fragmentation to the benefit of capital market functioning.”
ISSA affirmed that involving FMIs in a variety of governance and operational roles can contribute to increasing trust of investors, “raising the quality of the ecosystem infrastructure which underpins the new asset class”.
It said that by these means, “FMIs will help crypto-asset markets to grow more quickly”.
ISSA said crypto assets—tokens and cryptocurrencies issued on distributed ledgers—are “on a trajectory to establish a new asset class” and, as a result, “intricate eco-systems are emerging as crypto assets continue to expand”.
ISSA highlighted: “As crypto markets grow, ensuring investor rights protection, safety and robustness, as well as overall efficiency is increasingly presenting its challenges. To enable further growth, crypto markets are increasingly looking for FMI-like roles and pieces of infrastructure to create the safe and efficient environment that issuers, investors and financial institutions look for.”
It added: “Accordingly, some of the future’s FMI roles and infrastructure will fall within our natural remit of bringing safety and efficiency.”
Stephen Lindsay, head of standards at SWIFT, said: “Whenever financial transaction data is shared it’s important that all participants in the business process understand it in the same way. The emergence of new and varied crypto-assets only reinforces the need for clear, unambiguous and agreed definitions.”
He added: “SWIFT, which has deep experience in the standardisation of business data through ISO 20022 and other standards, is delighted to collaborate with the CSDs working group on DLT to explore and define the standards required for the industry to manage crypto-assets safely.”
Eddie Astanin, chairman of the executive board at National Settlement Depository (NSD), said: “NSD was one of the initiators of the CSD working group. Digitalisation is quickly and dynamically changing the financial market landscape. Therefore, we see new opportunities and perspectives in servicing digital assets in our clients’ interests, and these activities go in line with our mission—to be providers of high tech infrastructure solutions.”
He added: “NSD’s plans for developing digital technologies fit harmoniously into the national programme of digitalisation of the Russian economy.”
Boris Tomaž Šnuderl, president and CEO at KDD, commented: "We are proud to be members of the ISSA CSD DLT working group that prepared this study. The implementation of DLT/blockchain technologies and the opportunity to support the vibrant market of crypto assets by the KDD as an established market infrastructure, promote further development of the Slovenian financial market and ensures its integration into a modern and increasingly digital international financial market."
Rashed Al Blooshi, chief executive of ADX, said: “We are delighted to be a member of ISSA CSD DLT working group and contribute to the creation of the crypto-asset infrastructure study. The crypto-asset market is advancing at an astonishing pace in the [Abu Dhabi] region and we are proud not only to be contributing but also to be positioned at the leading edge of this regional transformation.”
He added: “At ADX, we embrace new and innovative business and technology and are always looking to capitalise on new advancements in the fintech, and in this case crypto assets, to benefit both our investors and stakeholders alike.”
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