Taking the pulse of digital assets in financial services - Banking blog

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Invariably, any technology that shows early promise comes with hype. Yet in the digital assets and cryptocurrency space, developments over the last few months would seem to suggest this area is moving towards the mainstream.

For this reason, we are currently surveying financial services firms across EMEA to gain a realistic perspective on their current adoption of digital assets, and to assess the true state of play.

The survey will address industry attitudes toward cryptocurrencies, stablecoins, central bank digital currencies (CBDCs), tokenised securities, and non-fungible tokens (NFTs) from senior executives in banking, insurance, asset management, fintechs, regulatory bodies and emerging digital assets companies.

The timing for this survey feels right, based on recent developments. Some of the world’s largest banks have taken tentative steps in this emerging area, and customer interest is also rising. It is increasingly the subject of conversations we are having with clients.

Almost 90 per cent of the world’s central banks are looking at introducing digital currencies. In June, El Salvador became the first country to accept Bitcoin as legal tender.

Citi declared that is looking into cryptocurrency markets, specifically citing customer demand as the driver. In May, Goldman Sachs executed its first cryptocurrency trades, having announced it was re-entering the bitcoin market. BNY Mellon invested in a crypto startup, Fireblocks, and later revealed plans to offer crypto custody services from its digital hub in Dublin. Earlier this year, MasterCard announced it would open its network to certain cryptocurrencies.

This year also saw non-fungible tokens, or NFTs, come into the spotlight offering a powerful new means to represent digital property. In theory, anything which can be represented digitally can now be issued as an NFT to be bought and sold. Recent examples include digital art, tweets, and even soundbites. This is creating new customer engagement models and new revenue streams for artists, sports associations, and video-game developers alike.

This all suggests positive momentum, but it is also important to acknowledge the volatile and unpredictable nature of the crypto market. In May, Tesla said it would no longer accept payment in Bitcoin, although CEO Elon Musk subsequently clarified that the car maker would resume Bitcoin transactions when the environmental cost of mining the coins reduces. China’s recent crackdown on bitcoin mining has led to its price plummeting. We must also recognise the scepticism that exists around this much-hyped area, and this is important context forming the backdrop to our survey.

Below, we preview some of the key insights the survey results will uncover.

Do financial services organisations see digital assets as viable over the long term?

‘Announcements’ and ‘plans’ make for positive press coverage, but the question to ask is whether financial services organisations are committing real investment to this area. The survey aims to collect an aggregate of perspectives and data points from industry, to shed light on our clients’ views on this issue. We hope this will ground some of the discussion around cryptocurrency and digital assets in realism.

From our work with large global banking and financial services clients, we know many have been experimenting with digital assets for several years. However, the transition from research and experimentation into strategic intent, investment and execution can be harder to discern. As the dust of experimentation has settled, some are now clearly pursuing the rollout of services that cater to customer demand for cryptocurrencies. Others are pursuing the development of ambitious new market infrastructure, and others still pursuing the launch of new digital assets such as stablecoins and tokenised securities.

One of the indicators of real strategic intent can be inferred by observing marketplace M&A activity; Paypal’s recent acquisition of digital asset custody specialist Curv is one relevant example of this.

As the examples show, there are clearly some players at the forefront that are putting real investment into crypto. What we want to find out from this survey is whether other firms feel similarly; that now is the time to invest, or whether most are still adopting a ‘wait and see’ approach.

Another factor to consider is whether large institutional and corporate clients are asking their financial services advisors about what services they offer in the digital assets space. Our sense is that changing customer demand is triggering a lot of the activity. It is likely some of the banks are reacting to this change in behaviour out of a sense of not wanting to lose customers if they don’t offer crypto products and services.


Is regulation really the biggest barrier to adoption?

There’s a lot of progress being made, but there is a debate: if you over-regulate something at a very early stage, do you kill it? Conversely, if regulation is insufficient or unclear, can institutions confidently adopt new digital asset service models? Our survey is EMEA-wide, so it will be interesting to watch whether any differences emerge between geographies. For example, Germany’s cryptocurrency regulations only permit citizens and legal entities to trade crypto assets through licensed exchanges, while in the UK, providers are prohibited from offering crypto-derivative products to retail investors.

There is no question that regulators are making their voices heard in the digital assets space. The UK Financial Conduct Authority warned consumers about the dangers of “betting” on digital assets. The Central Bank of Ireland’s explainer on cryptocurrency says Bitcoin struggles to meet the criteria for a well-functioning standard currency, and says it’s more like a high-risk speculative asset.

Earlier this year, the European Commission proposed a regulation, Markets in Crypto-Assets (MiCA) to help regulate currently out-of-scope crypto-assets and their service providers in the EU and provide a single licensing regime across all member states by 2024. This proposed framework will bring into scope other cryptocurrencies, security tokens and stablecoins which are not caught by existing regulation.

Will tokenising financial assets transform the underlying infrastructure?

Tokenisation means representing an asset – which can be any real-world asset but, in this case, refers to a financial asset like an equity or share – as a digital token, usually with bearer-like ownership properties. Unlike traditional settlements that can take up to three days to reconcile, buying or selling the token on a blockchain network facilitates near real-time reconciliation. This acceleration of value transfer can transform financial markets infrastructure.

We will be keeping a watchful eye on what the survey tells us about whether financial providers are actively looking at tokenisation, what specific areas they are applying it to, what kinds of assets they believe will be tokenised, and the rate of adoption and issuance of tokenisation across the financial services market.

If you have a strong view on these issues, we encourage you to take part in our Financial Services Digital Assets Survey. By participating, you are contributing to an accurate reflection of current and planned future activity in the crypto ecosystem. Over to you.

Financial Services Digital Assets Survey

This survey will form the basis of a whitepaper which will explore:

  • the rate of adoption for digital assets in the financial services industry across EMEA;
  • key implications of digital assets for the industry; and
  • examine how the industry is preparing itself to meet the disruption of digital assets.

If you are working in the digital assets space in the financial services industry, we invite you to participate in the survey here. The survey should take no more than 10-15 minutes to complete. The closing date is Wednesday 21 July. 

Key contacts

David Dalton  Partner   Deloitte

David Dalton, Partner | Head of Financial Services, Deloitte Ireland.

David Dalton is a Consulting Partner and the Deloitte Financial Services industry leader in Ireland and is the North and Southern Europe Investment Management Sector leader. David is sponsoring partner for the Deloitte EMEA Blockchain Lab based in Dublin. He also serves on the Executive Committee of the firm in Ireland.
ddalton@deloitte.ie

+353 1 407 4801

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