Maurice:

Welcome back to C&F Talks, the series of interviews in which I get to chat with one or two of the speakers coming to future events that City & Financial is organising. Today, it's my great pleasure to have with me Jorgen Ouaknine, who's the Group Head of Innovation and Digital Assets at Euroclear. And Jorgen's going to be speaking at the Digital Asset Innovation Summit on the 2nd of July, which is being held as part of City Week at the Royal Garden Hotel in London. Jorgen, welcome.

Thank you very much, very happy to be here.

Great to have you with us. Now, let's kick off with our first question.

How is Euroclear leveraging AI to enhance digital asset management and innovation?

So, you know, when it comes to innovation, it's important to notice that Euroclear has made innovation the purpose of our company. We innovate to bring safety, efficiency, and connection to financial markets for sustainable economic growth. And we have been innovating since our creation.

And you can take every major event that happened over time and guess what? We have been at a meeting point to support the growth of capital market and AI, DLT, and what's coming is no different. The main challenge is the pace of innovation. 

And when it comes to AI in particular, it's more than a hype. It's already quite embedded in how we basically operate. We serve the clients and build infrastructure.

And we're embedding AI in the ways to strengthen resilience, streamline operation, and create tangible market value. So, you know, when you talk about AI, you have to think about, you know, first of all, all the gen AI with tools that are already available for 100% of the employees of the company. And we have much more AI tools that are providing services like Easy Focus, which is dedicated to predict settlement fails, improve efficiency, and help our clients avoid CSDR penalties.

So, we are looking at AI for so many different angles, you know, always resilient, streamlined operation, and create market value.

Yeah. Yeah, so I mean, you're quite a pioneer, I think it's fair to say.

Now, what are the key challenges in creating international regulation frameworks for digital assets from your perspective at Euroclear?

One of the challenges is ensuring that cross-border perspective is applied through the design of new technology and infrastructure. And if you take the example of the saving and investing union, for example, it needs to be open and support European champions. And with a global footprint and collaboration between the jurisdiction, and it means for the UK specifically, that we should be able, that the UK should be able to interoperate with the SIU.

But what we see emerging today is a new era of collaboration because all the siloed initiative that we have seen in the market when it comes to digital assets are over. Now we see the emergence of public and private, basically type of collaboration. In Asia, you have GL1, you have Agora, you have everything the ECB is doing around the unified ledger.

And it's so important to have three key elements to make sure that we are able to progress. It's basically to have regulatory clarity, to have technological maturity and client demand. And when you have all these three together, this is where you see adoption and scale. And that has been the case in the previous parts.

And maybe to help this a little bit, when it comes to regulation and global impact, Euroclear has been pioneering together with DTCC and Clearstream, for example, on building the digital asset securities control principles, which is a foundational work, setting the principle on which how we should operate when it comes to digital asset securities. And that has been a huge, very well received in the market by all the participants and is helping guide the discussion.

Yeah, I'm just taking that point about sort of global standards of regulation.

How does Euroclear’s participation in Hong Kong's tokenisation project influence global standards? Or how do you hope it will influence global standards?

So, everything is pretty much connected. So last year we announced that we have a new CEO of our APAC region, showing our new ambitions there. Supporting the Hong Kong Monetary Association in their key project called the Project Ensemble is super important.

And we act in different capacity. And one of the key things we're going to contribute is part of the taxonomy. When you think about being global and having a global impact, you need to make sure you speak the same language.

And as vanilla as it may sound, we don't have the same definitions when we talk about a consensus mechanism or different concepts that are so key for the growth and the adoption of digital assets and being able to support, being led by the HKMA and the Architectural Committee of the Ensemble Project, the taxonomy, that will have a global reach in cooperation with many of the players that have contributed to that. But we need now to speak the same language and have some standards because standards have always supported the growth in a new innovation era.

Yeah, indeed.

Obviously, Europe acts at various parts of the value chain, but in what ways can tokenisation transform post-trade services at Euroclear through digital assets?

I think we need to think about tokenisation in many ways because I often like to say that the smart contract is going to be to the contract what the smartphone was to the phone. Imagine now that you have in a smart contract all sets of data, public data, private data, known data, unknown data, and set of rules. Well, guess what?

The infrastructure you need actually to be able to move a token from left to right, it's much lighter than the current heavy infrastructure that has to tell the asset what to do, where to go, the different rules, and it's quite heavy and you have breaks. So, it's basically streamlining all that. And on top of that, it's creating a golden source of record that everyone can rely on.

So, if you look at tokenisation, it's just not the shift, it's the next frontier of digital. And it's going to transform significantly the way we operate today in the capital market. We have been built around; I would say sequential value chains. And now everything is changing. And that's how tokenisation is basically going to support that.

Maurice:

I mean, tokenisation as a concept, on-chain tokenisation, it seems to have a whole variety of potential applications. Which are the ones that Euroclear see as having the most potential for market growth?

You know, that has been a big challenge for the market as a whole, because while you see a lot of enthusiasm in the market and the digital assets are still nascent, and it's super interesting to look at this trend, because you can think about for a second, all the crypto world that is around 3 to 4 trillion. Euroclear standalone has more than 41 trillion of assets under custody. So, when you compare this to the size of the real-world asset that we have only in our custody solution, you can already see a challenge in terms of size and impact.

And if you add other custodian, it's even smaller. Nevertheless, what we see is that nobody's backing off from their investment and everyone is progressing. There is an obvious one that is basically the collateral use case, tokenisation of collateral.

It's front, back and centre. And Euroclear is such a big player when it comes to collateral management that we need to be more active in that and see how we can, first of all, increase the pool of liquidity. Have more access to this untapped pool of collateral and see how we can make it available 24-7 to allow to adapt to the new ways of working of part of the ecosystem. So that's clearly one.

But we started our journey with securities issuance. It's, again, very vanilla use case, but it had the three main component to scale. You had the regulatory clarity around it, you had the technological maturity, and you had actually client demand. And it was solving one of the problem you didn't see before that wasn't solved before. Before you could do issuance, but you had no liquidity, no secondary market.

And our clients come to us because we provide that. And we have built a unique system that are able to basically start your journey in a DLT way and create a seamless experience for the investors and actually get everyone to the liquidity and secondary market. Obviously, that's top of priority, but we cannot ignore everything that is happening around the funds and around different use cases when you see stablecoin, et cetera.

And you have basically opportunities of conversions between DeFi and TradFi more than ever. If you try to combine both bringing the novelty, the efficiency, and as well, the trust and the resilience that Euroclear brings to this ecosystem.

Yeah, it's quite a revolution, isn't it? The coming together of those two sides.

Our time is up, but for our viewers, if you'd like to hear more about this and related topics, please do have a look at the website of this event, City Week, www.cityweekuk.com, where you'll find further details and the opportunity to attend the event. The event itself, of course, is called the Digital Asset Innovation Summit, 2nd of July, part of City Week, being held at the Royal Garden Hotel in London.

Jorgen, thank you very much for sharing those thoughts with us. We look forward to seeing you at the event.

It was a pleasure. I'm looking forward to be at the event. Thank you very much.