Digital assets are a challenge

Laurent Marochini, let’s start by talking about the digital transformation.

Yes, of course. The digital transformation is a necessity that companies are having to face in general, not only in the financial sector, but also in other sectors. Its goal is to increase client satisfaction through the development of more suitable products and to allow for rapid innovation, cost reductions, efficiency gains and data processing. Companies have to adopt digital transformation in order to remain competitive, but also to be able to gain share in emerging markets. 

What corporate strategies do you see in the market in this context?

Financial institutions have the choice between "Build/Buy" and "Partnering" or a combination of the two. In order to move forward in this new world, some asset services providers have worked with Fintechs who in turn have attracted talents from the financial sector looking for business challenges. We are not talking about a struggle for talent here, but rather a further development of employee profiles focusing on soft skills and digital skills.

What do you think: Do we need more regulation in the field of digital assets?

Regulation is needed; in Europe it is already ongoing with the DLT pilot regime. For cryptocurrencies and stablecoins, the crucial MiCA - the "Markets in Crypto Assets" regulation – will enter into force by the end of 2024. Regulation and risk assessment are the key factors of success here. 

What is the impact of the MiCA directive in the EU?

MiCA is very important because it gives us more clarity on how we are able to manage cryptocurrencies, utility coins, stablecoins, etc. It will eventually allow for the implementation of transformative projects. I firmly believe that regulation is a strong asset that will inspire confidence, especially in the investment segment. It is the key to the institutionalisation of cryptocurrencies and corresponding market participants.

What are the advantages provided by digital assets that institutional investors don't find in other asset classes?

In the world of tokenisation of financial assets, we can see that we need a more industrialised process to validate all the benefits. The first benefit of the tokenisation of financial assets is to reduce costs when issuing and certifying transactions using so-called "smart contracts", and also the speed of transactions.

Very often you hear the statement "We'll transform this illiquid asset into a liquid one".

Indeed, the fact of materialising an asset in a blockchain allows to fractionalise the shares. Instead of buying an apartment, one can buy 2% of the asset. The fractionalisation of assets gives access to investment to a greater number of investors, which allows to make it more liquid. Real estate is a very good example.

A great deal has been written about blockchains. Let’s leave the energy question (Proof of Work versus Proof of Stake) to one side for the moment.  What do you see as being the positive aspects of cryptocurrencies?

In a world where more than a billion¹ people do not have bank accounts, cryptocurrencies can be a solution to integrate them into payment channels. As transactions are automated and cost-effective, they contribute to microfinance. This could be a game changer in certain emerging markets.

Do you see any risks in building up the infrastructure?

We should avoid building an old world in a new world and making the same mistakes we've made in the past when different, incompatible infrastructures were developed alongside one another. We must collectively work on standards with simplicity, safety and efficiency as key words.

Let's talk about the current situation as we finish. Your company recently launched the first cryptocurrency fund in France.

Societe Generale Securities Services helped Arquant Capital to launch the first regulated crypto fund in September 2022. Given the nature of the risks, cyber security programs are going to be fundamental. It's therefore beneficial to choose an ecosystem of partners that are supervised by local regulators in controlled legislations. The risk management and expertise of the teams are the basic prerequisites for approval.

Finally, let's take a quick look into the future. What important developments do you see happening over the next 1-2 years?

I firmly believe that the tokenisation of financial assets as well as real assets will bring a lot of value. Take the example of a car: If you want to drive it, you need fuel or energy. If you want to use blockchain and leverage on tokenisation, you need a money-on-chain solution, where adoption is driven by a wholesale CBDC - a central bank digital currency exclusively available to commercial banks and other financial institutions such as insurers. Taking a more futuristic perspective, some funds also see the Metaverse as a solution for developing asset management and keeping up with the social revolution. With more than 3.2 billion gamers²  worldwide, it's hard to ignore this phenomenon, even if we're only at the beginning of the story today...

Laurent Marochini, Head of Innovation, Societe Generale Securities Services Luxembourg