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When investors want to place an order they are still dependent on the cumbersome journey through financial intermediaries – a process that is no longer up to date. In order to ensure more independence, efficiency and swiftness in the future, and ultimately to strengthen its own competitiveness in the field of new financial technologies, the EU is launching a “pilot regime” using so-called distributed ledger technology (DLT) from March 2023 onwards. As a software developer for digital marketplaces, 21finance will be taking a leading role. The fintech company will implement core DLT technology that is expected to revolutionize the financial sector.
By launching the “pilot regime” in the form of a “regulatory sandbox”, the EU is opening the door for DLT technology and thus broadening the scope for the finance industry: DLT market infrastructures will be exempt from certain MiFID II and/or Central Securities Depository Regulation (CSDR) regulations in order to operate the new technology in the financial market. Initially, the “pilot regime” will be applied for at least three years. Subsequently, the EU member states share their experiences with the European Securities and Markets Authority (ESMA) in order to create a decision basis for an extension of validity or follow-up regulation.
The Liechtenstein-based fintech company 21finance AG, founded in 2017, is the leader in the development of the new marketplace infrastructure. 21finance is currently establishing a new company in Germany to implement a so-called DLT trading and settlement system (DLT-TSS). For the first time, this system allows regulated activities from different market participants to be merged into a single entity. This technology provides the necessary protection and enables the replacement for the so far separated units. At the same time, it ensures that their respective functions remain in place. The core principle of the technology is based on the fact that activities on a DLT-based marketplace take place at real-time according to the peer-to-peer principle. This will significantly impact and reduce the risk of manipulation by third parties, providing a high level of trust.
“The global financial market must evolve to meet the challenges of the future. The European Union has laid the foundation for this by publishing the pilot regime. 21finance is taking a pioneering position in the development of DLT-based market infrastructures. We invite capital market participants and other interested parties to join our project – the realization of the first multilateral trading and settlement system for tokenized stocks, bonds and funds in Europe”, said Max J. Heinzle, CEO of 21finance.
The “pilot regime” will enable the custody, record keeping, trading and settlement of DLT financial instruments through a regulated market infrastructure. This technology fulfills a wide variety of functions, including centralized custody. The traditional transaction chain between (central) custodian, custodian bank and investor will no longer be necessary, as DLT offers investors the possibility to process transactions with digital assets simultaneously without involving an intermediary. This is more efficient, faster and, most importantly, more economical- relevant arguments for an industry dominated by shrinking margins.
“We are about to see real-time transactions as well as settlement through a new capital market infrastructure. This will result in new standards for tomorrow’s market. 21finance will take a leading position in the development and operation of DLT-driven market infrastructures,” says Heinzle .
With its innovative, decentralized software solution, 21finance AG offers banks, financial intermediaries as well as companies outside the financial sector the opportunity to maintain digital marketplaces for the distribution of financial products. Through their own marketplace, operators can issue, distribute and make available for trading in the secondary market digitized assets such as shares, bonds, investment funds or even security tokens and cryptocurrencies in compliance with the law. Thanks to the white-label software of 21finance AG, many other services along the value chain, such as the opening of a wallet, can be flexibly included. Investors can thus be offered a fully digital and regulated investment experience. If desired, issuers can place financial products on other marketplaces within the 21finance network. This significantly increases reach and product diversity. With 21finance AG, the respective marketplace operators also benefit from a time- and cost-efficient access to digital sales – and in a digital financial world.