Digital assets – an evolving market
Digital assets encompass a broad spectrum of financial instruments including crypto-currencies, central bank digital currencies (CBDCs) and tokenised securities. Speaking at the Network Forum, Olaf Ransome, Head of the CSD function at SIX Digital Exchange (SDX) said that institutional investor appetite for digital assets and crypto was gradually growing, and service providers are taking note. “Two years ago, banks and private banks did not want to have anything to do with crypto but now their underlying clients are asking for it. As a result, providers are putting in the infrastructure to support this growing client and investor demand,” said Ransome.
Tokenisation is generating particular interest in securities markets. Although most providers accept that tokenising straightforward equities is not of much tangible use – mainly because the market functions very efficiently already – there is a compelling case to digitalise illiquid assets such as fine art or commercial real estate. Through divisible, low cost tokens, more investors – including retail – will be able to trade in illiquid assets which were previously unavailable to them. In addition to democratising investment, tokenisation could help generate more liquidity in these thinly traded assets while facilitating much better transparency and efficiency during the transactional lifecycle.
Nonetheless, providers such as SDX are insistent that the transition towards digital asset trading and settlement should not be rushed. Ransome acknowledged the shift towards digital assets will be an evolutionary one with existing financial market infrastructures (FMIs) continuing to operate in parallel with digital exchanges and infrastructures. This cautious approach of transitioning towards digital assets will be essential in order to ensure that the wider institutional investor market becomes comfortable with these new instruments.
Costs are rising for clients and many are looking for ways to find operational efficiencies. Speaking at an Expo session during the Network Forum, Christophe Lapaire, Head Advanced Tax Services at the Swiss Stock Exchange, told TNF that wealth managers and private banks could generate significant revenues for their underlying investors through ensuring better tax optimisation from their investment portfolios. Losses as a result of double taxation and tax leakage on investment portfolios are not trivial sums. The challenge, however, is that not all private banks and wealth managers have the correct systems and technology to calculate tax optimisation on their portfolios. As a result, more institutions are looking towards their service providers to help them with tax optimisation.
The Swiss Stock Exchange provides a number of industry-leading solutions around tax, including Relief at Source, Quick Refund and Tax Reclaim services. Its new Advanced Tax Services (ATS – Tax Reclaim Service) is an innovative solution aimed at banks and wealth managers. Most significantly, the service is readily available to organisations irrespective of whether their assets are held in custody at the CSD (SIX SIS Ltd.) or not, a level of flexibility which is genuinely unique to the ATS-Tax Reclaim product. The ATS-Tax Reclaim solution offers a number of advantages to private banks and wealth managers globally. In addition to allowing banks to provide a new service to end-clients, it will enable them to increase their book of business and entrench existing commercial relationships. That this service is being delivered by the Swiss Stock Exchange – an FMI – as opposed to a competitor or consultant is also a very enticing proposition.