Latest developments in Digital Assets

In these two episodes, we are exploring the latest post-trade developments in the fast moving area of digital assets with a special focus on key milestones in France and Germany.

Part I – Digital assets and the new German Electronic Securities Law



I am Alan Cameron and I would like to welcome you to this Thinking Aloud podcast brought to you by BNP Paribas Securities Services. In these podcasts we delve into the details of the post-trade world, in this edition we are going to be talking about digital assets and what is happening in Germany in particular. I am lucky enough to be joined by Kurt Zeimers, Kurt is responsible for our asset manager franchise in Germany and is a core member of our global working team on digital assets.

Welcome Kurt and can I begin by asking you how do digital assets impact your day-to-day responsibilities in Germany.


I am responsible for the go-to-market strategy for the client segment asset managers in Germany. This also includes regulatory watch. Since 2019, I am closely following all regulations on Digital Assets from a German perspective.

It all started with the transposition of the AML5 Directive into German law, which included for the first time a regulation for crypto-currencies. I am also a member of different working groups of market associations of banks and asset managers where we discuss those regulatory changes on digital assets and these are one of the major topics of these market associations.


So, we often hear that Germany is one of the leading countries in Europe when it comes to the regulation for digital assets. Can you tell us a little bit about that and what the latest regulatory changes in Germany are?


First I would like to explain what the term “digital assets” means. On the one side, we have the crypto-currencies and other unregulated tokens, such as utility tokens for example and on the other side, we have security tokens which are regulated and which might be considered as financial instruments under MiFid II and as securities under local civil law, such as the “Custody Act” in Germany. Both types of digital assets follow different national and European regulation.

So what are the latest regulatory changes in Germany?

It all started 2 years ago, in May 2019, when the Ministry of Finance has published a draft law on the new financial service of crypto-custody for crypto-currencies. This was triggered by the local transposition of the AML5 Directive into German law.

Then in Sept 2019, the German government has published its Blockchain strategy. One objective of this strategy was to introduce digital securities issued on a DLT into German civil law.

Then In Jan 2020, crypto-custody of crypto-currencies becomes officially a financial service supervised by BaFin and in June this year, the Electronic Securities Act entered into force which allows the issuance of digital bonds on the Blockchain, without the need of a global certificate, which was so far always required for the issuance of securities in Germany. And In August this year, a Draft regulation with the details for the registrar services for digital bonds has been published and in Sept 2021: a Draft regulation on the issuance of funds shares on a DLT has been published. The last two regulations will enter into force probably until the end of the year at the latest.


So can you help me understand then how this is impacting our clients and the industry? How are our clients, and indeed the broader industry, reacting to these regulatory changes?


Buy side clients, so asset owners such as insurance companies or pension funds and asset managers are keen to better understand the new regulation and the impact it might have on their investment activity. As a market leading depositary in Germany, we act as their trusted advisor and as a thought leader in the fund industry we are closely following those changes in all major European countries and also in APAC and the US. Some of our asset manager clients are already working on first Proof of Concepts or even live experiments and want to invest into digital bonds with underlying real assets or tokenized private capital assets.

We also see asset manager’s demand for funds shares issued on a DLT to change the way their funds are distributed, similar to what we can observe in France and in Luxembourg. We see also that CSDs are working on digital issuance of investment products based on DLT technology together with issuers and market participants, especially for retail structured products. We are also seeing many experiments with CBDC or stable coins, mainly in France as the German Bundesbank is not open to those kind of experiments in contrast to the Banque de France


Every time we talk about digital assets things seem to be changing and changing very quickly. How do you see things evolving in the near future?


Currently each country issues a local regulation on crypto-custody, on digital assets service providers, on security tokens, etc. So Germany, France, Luxembourg, Switzerland and Liechtenstein are clearly leading in Europe. At an EU level we will see a harmonization of regulation in the next 3 years. The EU commission has already published a Digital Finance Package with 3 different draft regulations:

  • First, a pilot regime on DLT capital markets. It will introduce a sandbox regime for CSDs and MTFs to allow the market participants to test the trading and settlement of DLT financial instruments
  • Second, the change of the MIFID II directive with the introduction of a definition of financial instruments issued on a DLT and
  • And third, the MICA regulation, MICA stands for Markets in Crypto Assets. The EU wants to impose a harmonized regulation on crypto-currencies

But we will see also the industry will have to work on standards for the trading and processing of digital assets. Without common standards for digital assets and the DLT platforms facilitating their issuance, trading, custody and settlement, market participants will struggle to interoperate.

We will also see in the coming years an extension of OTC traded digital assets to stock exchange listed digital assets and the evolution of a secondary market. In addition, the ECB will work on the introduction of a digital EUR, however it will look like and we will also see many new projects in the area of Decentralized Finance (also called DeFi) such as lending and staking of tokens. DeFi’s objective is to build a capital market ecosystem on a DLT environment that does not rely on central intermediaries.


That all sounds very exciting. How will that impact our clients?


With the introduction of digital assets, the capital markets will become even more complex and the investment processes and the risk management need to be adapted accordingly, therefore I think we will see institutional investors and asset managers asking for a one-stop solution, i.e. a global custody provider which offers services for both traditional securities and digital securities which can be issued all over the world in all the different countries and asset classes they want to invest in.

Finally, the introduction of fund shares on the DLT will have a major impact on the way Fund distribution is working today. This can be observed already today with the arrival of new global platforms (being it Fintechs or legacy service providers) offering services for the distribution of tokenized funds and the maintenance of the registry of the investors.

Kurt, this has been really interesting, thank you for sharing your insight with us. This has been a BNP Paribas Securities Services Thinking Aloud podcast, I hope everyone listening has found it as interesting as I have, and there are many similar podcasts available on our website. Thank you for joining us.

In this episode Kurt Zeimers joins Alan Cameron to discuss digital assets and recent changes in the German regulatory environment and the impact these changes are having on asset managers and asset owners.

Part II – Liquidshare and the Banque de France project



Welcome to our podcast series, Thinking Aloud with BNP Paribas. I am Natacha Dezert, Product Manager within the Digital Strategy and Transformation department of BNP Paribas Securities Services, and I am joined today by Brigitte Gignoux, Head of Business Development for Liquidshare to discuss Central Bank Digital Currency (or CBDC) and the exciting project that Liquidshare have been working on with Banque de France.

Welcome Brigitte, perhaps you can start by telling us a little about Liquidshare.


Yes, sure, thank you Natacha. So Liquidshare was founded in 2017. It’s a fintech backed by some of Europe’s largest financial institutions: AFS, Eoc, Euronext, S2iem, Caisse des Dépôts, BNP Paribas Securities Services, Caceis as well as Societe Generale Securities Services.

Liquidshare leverages distributed ledger technology to simplify processes and bring value-added solutions for post-market industry. It offers a Market Infrastructure for issuance and settlement of digital assets. Liquidshare is a team of 12 experts and we have one client live since June 2020, it’s a corporate using our registry solution.

The initial target of Liquidshare was leveraging blockchain to create a dedicated infrastructure for listed and non-listed SMEs, responding to the political objective of SME financing by capital markets.

Mid 2020 the Board initiated a strategic pivot with the objective of monetizing existing assets and investments. A new CEO Jean-Marc Eyssautier arrived in January 2021 to orchestrate this strategic pivot and a new value proposition was found. It consists of leveraging Liquidshare’s strong expertise on blockchain and foster innovation to bring value added solutions for the post-market industry. This new proposition is based on 3 pillars:

  • Market infrastructure with a settlement platform for digital assets
  • Post market solutions (private equity, Middle Office for Commercial Papers’ primary market)
  • IT provider – R&D and Lab for the benefit of our shareholders

At Liquidshare, we have a Partnership-based approach whenever relevant either from a business or technical perspective. It means that rather than POC, we now are working on business cases that answer client needs.


Thank you Brigitte, what were the aims of the Banque de France CBDC experiment and why was it important?


The aim of the Banque de France experiment is to explore the potentialities offered by the Blockchain technology and to identify concrete cases integrating CBDC in innovative procedures for the clearing and settlement of tokenised financial assets.

The challenge of these experiments is to identify how innovative technologies could improve the efficiency and fluidity of payment systems and financial infrastructures.

Mid 2020, Banque de France’s Liquidshare for applications to experiment the use of central bank digital currency for interbank settlements. Experiments will allow exploring new ways of exchanging financial instruments for central bank money, secondly testing the settlement in central bank digital currency on Blockchain in order to improve executing conditions for cross-border payments and thirdly, revising the arrangements for making central bank money available.

In this context Liquidshare was selected, along with 14 partners brought together in a consortium led by Liquidshare and experiments took place on the 18 and 25 of June 2021.

It was really important for Liquidshare because, by definition settlement processes require cash; Liquidshare’s system is agnostic of the currency type use for settlement, but we need to be able to deliver solution in whatever currency the market deems relevant


Thanks you Brigitte, that is very interesting, from our perspective at BNP Paribas Securities Services we were very keen to get involved because it was the opportunity to support a Fintech we believe in which we co-founded and of which we are shareholders.

At BNP Paribas,  we believe that Liquidshare’s application was interesting with a wide representation of the whole ecosystem, with a use cases covering both listed and unlisted financial instruments and the various steps of a security life cycle.

It provided the opportunity for us to keep learning and gaining expertise on the Blockchain technology and its potential benefits to improve the exchange processes between financial intermediaries

And last but not least as Brigitte just said, settlement requires cash and today there is no reliable and safe cash leg on blockchain, so it was quite important and exciting to see the settlement process of securities tokens against cash tokens and we have definitely learned some lessons from these experiments.

What have you seen from Liquidshare’s perspective?


At Liquidshare, we learned three main lessons. First lesson: validate the use of CBDC in our systems and specific features. The consortium led by Liquidshare covered 2 use cases: delivery versus payment for both listed and non-listed securities on blockchain. LIQUIDSHARE & partners have been able to demonstrate with the Banque de France their ability to appropriate new technologies and to have all financial intermediaries worked together.

Second lesson: test the whole post-market process. The tests span across the entire life cycle of securities, from issuance and registration in the blockchain to secondary market operations’ settlement. It allowed to validate all processes throughout the day with, among others, the functions of creation, control and destruction of CBDC tokens vested to the Banque de France.

And the third lesson: bring the whole ecosystem together. Liquidshare and its 14 partners successfully completed the experiment.  As a whole, 15 entities and more than 45 participants, representing the entire ecosystem interacted during two days.


This is certainly an interesting area to watch over the coming months…

According to Banque de France, the results of these experiments will be a key element of its contribution to a broader reflection conducted by the Eurosystem on the potential implementations of a CBDC. The Banque de France sees these experiments as the first phase of a more comprehensive program of experimentation on CDBC.

On our side at BNP Paribas Securities Services, after successful experimentation, we are willing to explore further use cases and live transactions and s a custodian providing settlement services, we are very interested in having a reliable cash leg available on Blockchain solutions such as the Liquidshare platform in order to be able, besides custody of digital assets, to offer full settlement (cash tokens against securities tokens) on Blockchain to our clients

We believe we have exciting upcoming months and years with Central Banks and financial market players going from POCs to live experimentations and with Central Banks likely to start working with each other regarding cross border settlement & payments using CBDCs as suggested by the recent announcements by the Monetary Authority of Singapore and the Banque de France regarding the successful completion of a wholesale cross-border settlement experiment using Singapore Dollars and Euro.

Brigitte, what do you see as the next steps for Liquidshare?


At Liquidshare we now integrate participants’ feedback in order to enhance its solutions. The success of the experiment best prepares for the development of post-market solutions for digital assets, securities or cash. And of cours this experiment paves the way for the future of digital assets processing.

The lessons learnt from these experiments will be a direct contribution to the more global reflection conducted by the Eurosystem on the value of a central bank digital currency.


Thanks Brigitte, We will look forward to working with Liquidshare on this project going forward, but for now, I would like to thank you for joining us for this Thinking Aloud podcast.

In part II our attention shifts to work that Liquidshare have undertaken with Banque de France on the transferring of digital assets using DLT technology. Manager, Natacha Dezert welcomes Brigitte Gignoux, Head of Business Development at Liquidshare to provide the latest update on this exciting project.