Interestingly, Germany has drafted a new law which will enable its banks to be more engaged with digital assets. However, the new bill is insisting on the need for ‘separation’, which means digital assets must not originate from the same legal entity as other banking transactions. This may help to explain why several numbers of global custody providers such as Fidelity, BNY Mellon, State Street and Northern Trust are gearing up to offer digital asset custody, as many banks will have to use these types of custodians.
If we are to see banks starting to trade and hold digital assets for clients, there is a concern that it will encourage people to switch from traditional stocks and shares into more volatile Cryptocurrencies. Indeed, Economist, Fabio de Masi, was reported as saying, “The banks are hot on profits from crypto transactions. But financial consumer protection must not be undermined”. However, as we see other countries (like Switzerland) changing their law to allow digital versions of publicly listed companies, such as Unilever and Novartis, the new German laws being proposed will allow banks to offer these types of Digital Assets to their customers too. Elsewhere in France, Blockchain technology is being embraced as in Paris we saw the launch of “The Garage”. This is a group of Blockchain-interested start-ups joining forces aiming to enhance Europe’s position in the global Blockchain sector. Switzerland is changing its laws, like Germany, as it is looking at proposals to alter nine federal acts, covering both civil law and financial market law. A press release from the Swiss Federal Department of Finance stated Switzerland wants “to create the best possible framework conditions so that Switzerland can establish itself and evolve as a leading, innovative and sustainable location for fintech and DLT companies”.In a survey carried out by E&Y, it was found that “over 80% of clients express interest in financial advice and planning, yet half remain on the side-lines. These idle clients present a huge untapped opportunity for the industry: the providers who can engage them can lead the way in reshaping how wealth management is delivered to satisfy complex personal needs”. Creating digital versions of various assets, such as mutual funds, bonds, equities, commodities as well as alternative assets i.e. Intellectual property, individual buildings, Private Equity funds, Venture Capital funds or Infrastructure funds that can be traded via a mobile phone, 24/7, is true innovation. We are getting closer to this being a reality and potentially challenging existing wealth managers and product providers (such as banks and asset managers). Indeed, the CEO of Australia’s Stock Exchange, Peter Hiom, recently said when speaking about Blockchain technology, "We believe we'll stop talking about this technology in a few years; it'll just be how data gets shared I think this technology is still in its early stages and this will take time to be deployed and everyone will have their entry point. Ours just happens to be clearance and settlement.”