Article: DLT isn’t a silver bullet, but a key to Europe’s digital euro vision
This article was first published by Global Custodian.
Sam Riley, chief executive of Clearstream securities services, discusses the potential impact of a digital euro, the consolidation of central securities depositories (CSDs), and how evolving investor expectations are reshaping the securities services sector.
As Europe explores the digital euro, distributed ledger technology is seen as a key enabler for more secure and efficient wholesale central bank money settlements and a valuable tool to address existing inefficiencies.
“We are convinced that new technologies like DLT are not a silver bullet,” said Sam Riley, chief executive of Clearstream securities services. “While DLT isn’t a universal fix, its real value lies in addressing specific inefficiencies, particularly through delivery versus payment (DvP) mechanisms, which enable the simultaneous exchange of cash and securities in transactions.”
Riley noted that Clearstream’s digital D7 platform has already made strides in issuing digital-native assets, but without a digital currency, cash transactions still rely on conventional systems.
“Digital native assets need a digital currency eventually,” Riley observes. “We are actively working on use cases with market partners and central banks and have been very successful in trials so far, but we want to see more transitory solutions to keep the momentum going beyond the ECB trials.”
The development of a digital euro is not just about innovation but about establishing Europe as a digital leader globally. Without a state-backed digital currency like a digital euro, Europe could face market vulnerabilities and increased reliance on private stablecoins.
“There is definitely a need to have the capability for a fiat-backed currency to settle these transactions,” he added, highlighting how a robust digital euro could prevent an over-reliance on stablecoins like USDC and ensure the stability of Europe’s digital financial infrastructure.
Perspectives on CSD consolidation in Europe
CSD consolidation across Europe has long been a topic of debate – picking up particular steam following the publication of the Draghi report earlier this year, which called for a single CSD and a single CCP across Europe. The practical implications of achieving that, however, is a more daunting prospect – with the acquisition and integration of 27 CSDs a likely expensive and time-consuming task.
Riley believes the discussion on consolidation needs nuance, as there are both risks and rewards. “Consolidation alone will not solve the problem,” he said. “We have already consolidated internal systems across collateral management and corporate actions, which has helped streamline our processes.”
There have also been recent regulatory updates as a key development for facilitating cross-border CSD services without necessitating full consolidation. The CSDR Refit allows for the passporting of services between CSDs across European countries. Riley explains that Clearstream is exploring ways to connect with other market infrastructures through strategic partnerships instead of complete mergers.
The CEO sees selective consolidation as beneficial where it enhances connectivity and client access to services but warns against broad strokes that might stifle market diversity.
“We want to make sure that we retain healthy competition within Europe’s CSD network while pursuing efficiencies that ultimately benefit clients,” he said.
Adapting to a new generation in securities services
As the market landscape changes, so do investor expectations, with three primary trends being observed in the current landscape: the growing influence of retail investors, an acceleration of digitisation, and a heightened demand for high-quality data.
“Retail investors are playing a much more active role in the market, especially younger investors who have been heavily influenced by the growth of fractional investments and the ease of access provided by digital platforms,” he noted.
The rise of retail investment, especially in countries like Germany, is pushing the industry toward greater automation. “Digitisation, especially in post-trade, is all about making the industry more efficient and responsive to client needs.”
However, Riley cautions that data quality remains essential for automation and digitisation efforts to be truly effective. “For automation to work effectively, we need reliable, high-quality data. Data governance will play a critical role in ensuring that we can trust the data we are using. The industry has been talking about data for the last few years, but it is only in the past year that we have really focused on data governance, realising that good governance is what drives the quality of data.”
A digital future
The convergence of DLT, consolidation, and evolving investor expectations represents an opportunity to create a more interconnected and globally competitive European financial market. With DLT, a potential digital euro, and targeted efficiencies in CSD operations, Clearstream said it envisions a digital future that enhances trust, reduces inefficiencies, and strengthens Europe’s capital markets ecosystem.
As Riley puts it, “We’re on the cusp of a significant transformation. But this transformation will only succeed if Europe can align its infrastructure, regulatory frameworks, and market expectations toward a shared vision. We believe that with the right foundation, Europe can be a digital success story.”
