The various drivers behind the adoption of standards in the securities industry – such as the now 20-year-old ISO 20022 messaging standard but also the newer Digital Token Identifier – were topic for discussion in a Tuesday session at Sibos in Frankfurt. As most parts of the world will not add regulatory push like the EU has, the spotlight must rest on business utility.
“I guess, the favourite topic every year at Sibos, when we’re talking securities, is ISO 20022 and how to better push that forward with the custodian community.”
Session moderator Virginie O’Shea’s introduction captured some of the subject’s mystery: two decades into its existence, the pickup among both global and sub-custodians remains far from sufficient. At least so in the eyes of Swift, the finance world’s messaging backbone operator, which doubles as organiser of the giant conference. O’Shea was accompanied on stage by Giles Elliott of Tata Consultancy Services, and Stephan Dreyer from the Association of National Numbering Agencies (ANNA).
Except for in the EU, where ambitions for European market harmonisation have motivated relatively strong regulatory incentives, Giles Elliott does not expect parallels across the rest of the world.
“So, we need a business case,” he says, referring to research done with the International Securities Services Association (ISSA).
Long list
“A few things came out. One was the growth in APIs: in the absence of standards around APIs, as a technology provider, we are seeing a huge number of requests for highly customised bespoke APIs and this is going to create a mess downstream,” says Elliott, describing work done together with Swift to define a standard set of APIs (so, interfaces for machine-to-machine communication) for ISO 20022.
Another potentially business-supporting use case lies in situations where there is a need to validate a position or an entitlement when a client is electing or voting. Other areas that respondents had listed included corporate actions, account opening, tax, and digital assets.
Drawing on the experience from previous standard implementations, such as the ISIN (the 12-character International Securities Identification Number with has been there for 40 years to facilitate cross-border securities trading) Stephan Dreyer emphasises what he sees a need for a combined approach, also including regulation. This seemed to be echoed by the session audience, with a poll question singling out just regulation as the most efficient driver.
“Regulation will enable adoption,” said Dreyer. “I think the risk for a lot of firms of not being compliant with regulation is too great if you want to operate in regulated markets. But if we look at our experience at ANNA with other standards like the ISIN, I think what’s absolutely required is that combination of regulation and the value. What additional value is it bringing further? Data management capabilities; better, richer data proficiencies through automation … all of those things, I think, feed into the business case.”
Get your tokens sorted
A more recent area for standardisation efforts is digital tokens. A digital token identifier, DTI, is managed by its own Digital Token Identifier Foundation, in coordination with ANNA and the ISIN system.
TradFi and DeFi are not distinct things, they’re converging, and market participants are continuously seeing that more as a holistic market. You have Traditional assets, some of those are being tokenized; you’ve got new assets, stablecoins, other cryptocurrencies, and you’re getting innovation, financial innovation by taking traditional wrappers on crypto. And you still need to be able to do all the things you did before. Whether you had an ETF on a stock and that is now Bitcoin … being able to identify that, being able to aggregate your risk and exposure, understanding that type of things,” says Stephan Dreyer, seeing the standards help with the unique identification.
“People say ‘I bought Bitcoin’. There’s a lot of things out there called Bitcoin: wrapped Bitcoin and lots of people doing different things. Being able to differentiate between those things is critical. Another one that’s coming out more frequently these days is tokenized equities. Most companies are not actually really issuing stock on blockchain. That tends to happen much more in the fund space and debt space. But you’re starting to see all these platforms offering tokenized equities. And a lot of investors will think ‘oh, yes, I’m buying Apple’, when actually, it’s a third party and it’s just a digital representation of the way you’re participating in that stock, it’s not actually that stock. You don’t necessarily have the same rights and it is not fungible with the asset. That’s where identifiers like ISIN and DTI help make that distinction.”
Giles Elliott believes that many potential users of the ISO 20022 messaging standard are holding themselves back because they think adoption is harder and more costly than it actually is. In fact, many custodians and others already have the capability to work with ISO 20022 on their platform.
“So, the question mark is, what does it take for them to actually turn that on?”
Sibos 2025 plays out in Frankfurt from 29 September to 2 October, with about 12,000 registered delegates. We are there, overview our coverage here.
