It's not about CHESS - Part 4 | Custody vs Tokenisation
https://finclear.com.au/
In this special series 'It's not about CHESS', FinClear CEO David Ferrall gives his insights on Australia’s unique market microstructure that will enable rapid uptake of digitised securities, which is a direct result of ASX’s decision almost 30 years ago to promote direct ownership of listed securities via the Holder Identification Number (HIN).
Let’s not kid ourselves here - custody is a massive global industry, owned by big global investment banks and financial institutions, catering to an industry that is addicted to fees. Custody, as a solution to reporting assets on a consolidated basis, evolved to meet a genuine need many decades ago. It has served advisers well, and likely will continue to for some time.
But digital, tokenised and direct investments are the way of the future, and investment banks know this. Most are now (as a priority) building for the future, while protecting their current revenue streams until they have worked out how to monetise the new world.
At present, tokenised assets are mostly confined to crypto and NFTs, but there are many fintechs, particularly in the gaming and derivatives industries, looking at the current listed markets as a huge disruptive opportunity.
The problem? Regulation. Listed markets are, thankfully for retail investors, incredibly tightly regulated. Regulators are still only beginning to think about a new, decentralised, digital economy which is only now being fully comprehended with Web3. So, until regulators work out how to regulate, oversee and protect this new world, current infrastructure will remain. But for how long?
Here in Australia, we are very fortunate to have a major head start. To go back to my first point about the ASX and CHESS, digital, direct securities have been a capability for almost 30 years here, albeit with the world of custody platforms built up alongside. Now, with CHESS 2.0 pending, and the resulting capability to tokenise securities into a centralised, trusted, regulated environment, Australia will once again be at the forefront of financial markets innovation.