Tokenisation could “address certain limitations of the current post-trade process”, but the industry needs to get past the move to DLT-based financial services, which could be “a massive undertaking”, says Nadine Chakar. In a hearing before the House Financial Services Subcommittee on Digital Assets last week, the managing director and global head of Digital Assets at the Depository Trust and Clearing Corporation (DTCC) outlines the benefits and challenges of using DLT in the management of real-world financial assets.
The benefit of tokenisation on the post-trade process comes from “modernising, streamlining, and simplifying financial industry infrastructure with a shared fabric of common information”. With traditional financial assets represented as digital tokens, transactions could occur more swiftly, possibly reducing processing inefficiencies, improving reconciliation, and ultimately, reducing costs.
Not all good
The advantages do not come without a price. Chakar names security risks, compliance considerations, and interoperability as challenges. “It will be crucial that tokenisation implementation is carefully planned and integrated with existing systems and regulatory oversight is conducted with a technology neutral approach, where the principle of same risk, same activity, and same regulation, applies across the relevant chain of intermediaries,” she says. An interoperability solution that can satisfy the security, compliance, and conflict issues noted here would be necessary if the benefits of tokenisation were to be realised.
Looking ahead
Moving forward, Chakar suggests that further investigation and potential areas of study look into the criteria around ensuring legally enforceable possession and control of tokenised assets; the operational, cyber, and overall resiliency standards that intermediaries must achieve to support activity in tokenised financial assets; and the appropriate treatment of tokenised financial assets under financial responsibility, bankruptcy, and other insolvency regimes to ensure that holders of these assets have enforceable rights and obligations.
