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The future of digital assets

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Smart and steady wins - insight on how digital assets can best be leveraged across MENAT

Untold potential stems from digitalisation – and finance markets across MENAT are no different. But, a steady and strategic approach to FinTech is the best route. Part of that is ensuring that three of the main components of the financial market’s infrastructure – the exchange, the depository and the central counterparty clearing (CCP) house – are aligned in their digital purpose.

In turn, this helps regulators improve oversight and transparency in markets, which both feed into building market confidence, which is integral for driving growth and sustaining global competitiveness. The latter is worth making a priority, as the global FinTech industry market is expected to be valued at USD382.38 million by 2027, exhibiting a compound annual growth rate (CAGR) of 7.05 per cent during the forecast period (2020-2027).1

Taking full advantage of digital tools’ offering requires a collaborative effort amongst all the key stakeholders to collectively improve timeliness and visibility across the financial ecosystem, which will help ever enhance capital efficiency across the MENAT. Today, there are too many various business models and adoption strategies – a disjointedness that will need to change.

Getting it right

Despite intensifying pressure to embrace the 4th Industrial Revolution, digital advancements must not be rushed. Clever and careful strategies will yield greater dividends than hurried efforts that risk expensive backtracking later or, at worst, greater exposure to the very real risk of cyberattacks. For one, Cybersecurity Ventures expects global cybercrime costs to grow by 15 per cent per year over the next five years, reaching USD10.5 trillion annually by 2025, up from USD3 trillion in 2015.2

Many key questions still need answering in this digital journey. How will digital interchanges work? What will be the main focus in regard to different technologies and asset classes? How best to quantify and then increase the digitally associated value of these efforts? How to ensure that additional value is passed onto customers in a commercially viable manner? And how to create more of a level playing field, so that the number and type of market participants can engage in this new, digital future? Addressing these queries, and many more, is best done via more education, partnerships, investments and collaboration across the MENAT and beyond – all of which take time. Maximising the pros and minimising the cons of this FinTech evolution will involve a degree of ‘connecting the dots’.

And one size will not fit all, as technology choices will be shaped by regional demand, local appetite and regulatory contexts. But it is imperative that there is still a strong undertone of cohesion so that those operating across different geographies in MENAT and beyond, as well as asset classes, can seamlessly work together. Some efforts may be more experimental at the beginning, creating a snowball effect as they find success, and others will need more work. As such, proactivity and patience are needed in equal measure.

Regulators’ role

Regulators are an integral part of the intersection between market infrastructure and technology. Many across MENAT are already working hard to pin down the greatest opportunities and points of cohesion across the spectrum of FinTech, but the myriad of potential means more can be done. Currently, some regulations are being tailored to support the evolution of the existing environment, i.e., an extension of traditional markets. But looking ahead, we will increasingly see more innovation emerge as regulators and the broader market gains confidence.

One potentially significant challenge to consider is how this FinTech will work across international borders, in terms of interoperability and security. In this vein, regulators in-country and beyond would benefit from working together and potentially upskilling to ensure there are no gaps in the system. Regulators could also consider distributed ledger technology (DLT) more keenly, including the personalisation of assets, to help reduce risk. Overall, financial service professionals must remember that this is not the first evolution the financial markets have experienced – and it will not be the last. So, being open minded and nimble is paramount.

The global FinTech industry market is expected to be valued at USD382.38 million by 2027, exhibiting a compound annual growth rate (CAGR) of 7.05 per cent.

This article is taken from the HSBC Markets & Securities Services: MENAT Virtual Securities Forum 2021 Future of Digital Assets panel, which featured speakers from: DFSA Markets, Qatar Stock Exchange, Northern Trust, BNY Mellon and HSBC.

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