This week, the International Securities Services Association (ISSA) published a report on implementing blockchain-based digital assets. Authored by members of the Association’s Distributed Ledger Technology (DLT) working group, it outlines practical steps in issuance, settlement, custody, and servicing of crypto-assets.
The group focuses on industry-wide DLT acceptance and has explored blockchain since 2017 when it published reports on proxy voting. In 2018, it began its research on crypto-assets, releasing a paper on infrastructure; the precursor of this week’s publication: Crypto-Assets: Moving from Theory to Practice.
Over 30 authors are credited, including working group leaders from Euroclear, SIX, and Russia’s National Securities Depository (NSD). In fact, NSD Russia hinted at its relationship with ISSA last month, and included an asset risk chart in its report which also appears in this paper. Other contributors hail from the Abu Dhabi Securities Exchange (ADX), ASX, Standard Chartered, SWIFT, Citibank, and Nivaura.
ADX’s H.E. Khalifa Salem Al Mansouri said on Saturday: “ADX put in place robust standards to protect its investors and took advantage of these proven records to actively contribute to the […] paper. This included an analysis of ADX’s regulations and responsibilities, concluding that new forms of governance, as well as operations for distributed networks, are required.”
Aimed at market intermediaries, the report hopes to provide guidance and understanding for blockchain in securities. It has an emphasis on interoperability – not just between blockchains, but between DLT systems and conventional systems.
ISSA wrote that they “are likely to co-exist alongside the incumbent securities market eco-systems for the foreseeable future,” so it is imperative for blockchain adoption that the systems work in tandem.
To achieve this, the working group looks to standards organizations such as the International Standards Org. (ISO) and W3C, both preparing crypto-asset guidelines. Additionally, the International Organization of Securities Commissions (IOSCO) is prioritizing such guidelines due to regulatory concerns. However, ISSA believes that closer collaboration in standards-setting must occur for all market participants to see the benefits of blockchain.
These, the working group published, include simplified issuance and settlement, self-servicing with smart contracts, and diversifying the types of investable asset. The paper puts forward two methods of settlement: off-ledger and on-ledger, each with their own pros and cons. It also admits there are dangers in crypto-assets, such as a high risk of loss, the need to overhaul systems and services, and regulatory uncertainty.