Few European debt issuers, whether sovereign or private, currently issue and exchange digital assets using blockchain. Yet blockchain technology represents a major potential step towards decreased transaction timeframes, streamlined contracts and reduced transaction costs. Furthermore, digital assets can offer increased liquidity to investors through a secondary market. Investors will not only benefit from reduced settlement times, but also automated KYC.
Today, an investor looking to access the market for bank loans can only do so through a bank capable of issuing securities. As digital assets are underpinned by blockchain technology, it is technically possible to create a digital transferable contract from a bank loan. If the relationship between client and financial institution remains the same, the use of digital assets allows European issuers to diversify their sources of finance by allowing more participants into the secondary market, providing that they meet specific criteria. For investors seeking asset diversification, blockchain can open access to new types of assets that currently are either inaccessible or too costly.
An integrated banking model to support issuers throughout the value chain.
Within this framework, banks can support clients wanting to issue digital assets from origination to distribution into capital markets. The BNP Paribas integrated model supports clients right across the value chain: structuring digital assets, primary placement, issuance, secondary markets, custody of digital assets.
Despite a lack of regulatory harmonisation, the potential for growth of a European market for digital assets means the stakes are high. However, digital assets are currently regulated at a national level. Therefore, aligning responsibilities across different jurisdictions in order to better protect investors and issuers is critical. This is the aim of the Digital Finance Package – a European Commission project envisaged for 2023. If this legislative process succeeds, it will create a new legal framework for Europe. For non-financial digital assets, the proposed MiCA (Markets in Crypto Assets) regulation aims to harmonise national legislation to create stronger legal recourse for European investors buying and selling digital assets using blockchain, while also encouraging innovation. It all boils down to creating a framework to give investors and issuers confidence and thereby support the development of a single European market for digital assets.
Despite a lack of regulatory harmonisation, the potential for growth of a European market for digital assets means the stakes are high.