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The benefits of asset tokenisation within securitisation
Journal of Securities Operations & Custody,
16
(4),
366-384
(2024)
Abstract
Securitisation has allowed banks to move from an originate-to-hold to an originate-to-distribute model. While it is widely accepted that this helped banks to achieve higher profitability and diversification, it is also regarded as the main cause of the 2007–08 global financial crisis. The lack of transparency between the securities issued and the performance of the underlying loans led to extreme risk taking and amplified the impacts once the loans started to underperform. This paper explores asset tokenisation, which can bring similar benefits to securitisation while enabling more effective management of the risks due to the traceability and immutability of distributed ledger technology (DLT). The paper argues that tokenisation of assets has now progressed beyond the experimentation phase and is being adopted by major commercial banks, central banks and financial market infrastructures (FMI). In addition, it describes the regulatory tailwinds for market participants to get involved in deploying and using the technology that makes tokenisation possible. While tokens and securities are both claims on assets, tokenisation’s additional capabilities of traceability and programmability enable the terms of a claim to be modified programmatically under specific circumstances, for example through a smart contract. A further positive attribute of tokenisation is that it can significantly improve and compress the workflow of existing and new securities, bringing considerable benefits from both operational and cost perspectives. The paper goes on to argue that generalised adoption of DLT along with harmonised standards, interoperability and integration for tokenisation feature among key requirements on which market participants and technology providers are actively working. Finally, the paper makes the point that cryptographically proven data also acts as a stepping-stone for high-quality artificial intelligence (AI) implementations, which can continue to expand productivity and profitability for regulated financial institutions.
Keywords: distributed ledger technology; tokenisation; securitisation; post-trade workflow acceleration; bank profitability; risk; regulatory capital; liquidity; cost of funding
The full article is available to subscribers to the journal.
Author's Biography
Gonçalo Lima is the Capital Markets Ecosystem Lead at R3. Gonçalo also sits as a co-chair of FIX Trading Community Digital Assets and Technology Committee. For over a decade, he was a Macro chief operating officer (COO) at Standard Chartered Bank (SCB) and previously he worked in product control at BNP Paribas. He represented SCB at the Global FX Division and was the chair of the Steering Committee in 2020 and 2021. At SCB, Gonçalo has helped to deliver several change projects and digital initiatives in financial markets. Gonçalo holds a finance and banking MSc with distinction from University of Portsmouth and an economics degree from Nova University, Lisbon, Portugal.
Robert Barnes Chartered FCSI(Hon), Co-Chief Executive Officer (CEO) of BPX and Managing Director of Anopolis, is an exchange expert of 30 years in financial markets, including as CEO of two successful trading venues, Turquoise (2013–22) and UBS MTF (2010–13, while at UBS 1994–2013). His peers voted him The TRADE’s first Industry Person of the Year at its Leaders in Trading Awards, and he received the European Markets Choice Award for Individual Market Recognition in 2022. FCA selected him in 2022 for a two-year term on the Financial Conduct Authority’s (FCA) Secondary Markets Advisory Committee and appointed him in 2023 to its Sub-committee on Market Outages. Since 2021, he has served on the National Timing Centre Programme Steering Committee led by the National Physical Laboratory. The Chartered Institute for Securities & Investment (CISI) in 2023 awarded him its highest accolade, an Honorary Fellowship, and published his article on digital securities in The Review. In 2024, he addressed by invitation a closed session of the Digital Finance All Party Parliamentary Group at Westminster as well as earned the CISI Certificate in Ethical Artificial Intelligence. Robert holds a PhD from Cambridge and a BA from Harvard.
Charles Kerrigan is a Partner in the CRES Team and part of the specialist Crypto and Digital Assets Team at CMS London, specialising in emerging technologies including crypto, digital assets, decentralised finance and artificial intelligence (AI). He works on corporate finance and venture capital transactions in crypto, tokenisation, non-fungible tokens (NFTs), Web3 and DeFi. Charles is part of teams working on investing and setting standards for emtech in the UK, Europe and the US. He works on consulting projects on blockchain and AI for public bodies, policy makers, standards institutions and corporations. He has worked on tokenisation projects for debt, equity and alternative assets. He is the author of Crypto and Digital Assets Law and Regulation (2023). The Blockchain Industry Landscape Overview names Charles as ‘one of the UK’s leading influencers on blockchain’. He is the UK’s ‘recommended lawyer’ for blockchain and digital technology in the UK Parliament Hub.
