Digital assets, tokenised assets and crypto-currencies are set to bring wide-ranging changes to the finance industry such as greater efficiency, faster turnarounds and more transparency. However, the security of the virtual assets themselves and the transactions made with them remain a core concern, especially for the Asset Servicing community. This article looks at CACEIS' strategy for the digital asset space to better understand the support our clients need now and in the future as the space evolves.
Last year, CACEIS implemented a ‘Digital Assets’ business line to ensure our client servicing across the board leveraged the cutting-edge digital technologies available in today’s marketplace. We obtained Virtual Asset Servicing Provider (VASP) status in Spain and Luxembourg, and Digital Asset Service Provider (DSAP) status in France in order to offer custody of crypto assets and tokenised financial instruments with the same level of asset security as enjoyed by traditional assets. Furthermore, the group is in the process of applying for the EU’s Crypto Asset Service Provider (CASP) status.
CACEIS has been actively supporting clients in the tokenisation of investment fund assets and related digital custody services. However, the growth of this business is currently at a bottle-neck that requires traditional market participants to rise to the challenge of implementing a distributed ledger technology (DLT)-based market infrastructure.
Traditional settlement uses a standard automated Delivery-versus-Payment (DvP) process covering both the asset and cash legs of a transaction. However ‘on-chain’ (DLT or Blockchain-based) transaction settlement does not yet benefit from an industry standard for smart contracts, (a mechanism to replace the sequential settlement process) despite global financial community efforts to establish one. In the absence of harmonised operational market practices, an ‘on-chain’ or digital settlement currency that complies with the EU’s Settlement Finality Directive (SFD), which regulates designated systems used by participants to transfer financial instruments and payments, traditional asset servicers are unable to industrialise processes and unlock the expected benefits of Blockchain technology.
Keen to ensure our group is at the cutting edge of Digital Assets development to bring the benefits rapidly to our clients thereby securing them a ‘first-starter advantage’, CACEIS is deeply involved with the European Central Bank's exploratory works of a ‘wholesale’ Central bank digital currency (CBDC). A retail CBDC is used by the general public, while a wholesale CBDC is used for transactions between banks and other financial institutions. The wholesale CBDC (or Digital Euro) experiments were performed on DL3S, Banque de France's experimental Blockchain platform.
In France, CACEIS and its sister company, Crédit Agricole CIB (CACIB), with the backing of shareholder, Crédit Agricole SA, demonstrated the efficiency potential of working with tokenised deposits as part of cash and liquidity management solutions in a decentralised world. CACEIS also used DL3S for fund administration activities to show how it can bring value to investors, asset managers and TAs by automating subscription/redemption orders in open-ended investment funds and for commitment-related payments in private-asset funds.
The two experiments used the open source so|cash standard, which provides standard parameters for trusted information exchange between banks to interact with tokenised deposits, and was the basis for in-depth discussions with the EU’s regulatory bodies. In December last year, subsequent to the trials and experiments, the European Banking Authority (EBA) published a report on the tokenisation of deposits by credit institutions to identify existing cases, potential benefits and challenges, and actions the EBA and competent authorities should take to address any identified issues. We trust the ECB’s report will help to drive further progress in this key area.
Guénolé Keraudren, Programme Director stated, “CACEIS played an important role in the ECB’s experiments, validating automated subscription/redemption processing. We demonstrated the value it can bring to market participants such as investors, managers and our staff through secure automation and a reduction in processing times.”
Meanwhile CACEIS was also closely involved with similar trials and experiments in Spain designed to assess the benefits of implementing a wholesale CBDC for bonds from issuance until maturity, and is keeping a close eye on other European market initiatives both to bring its experience and to ensure we play a foundational role in the roll-out of CBDCs across the EU and beyond.
