Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
Digital Innovation and the Future of Financial Service
37 Plays3 years ago
The finance industry is experiencing its “Blockbuster to Netflix” moment as digital innovations like DLT are revolutionising how banking works and what clients expect from service providers. This conversation features some of the bank’s senior most leaders in a fascination conversation around what is driving digital innovation in financial services.
Emerging markets spotlight is a podcast miniseries created and hosted by HSBC that seeks to explore and understand the complex and critically important issues facing the world’s emerging markets. For further insight and information around emerging markets, visit Accessing Emerging Markets | HSBC.
Hosted on Acast. See acast.com/privacy for more information.
Recommended
Transcript
Introduction to HSBC Global Viewpoint Podcast
00:00:02
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes.
00:00:16
Speaker
Thanks for listening.
00:00:17
Speaker
And now onto today's show.
Emerging Markets and Global Complexities
00:00:32
Speaker
Welcome to the Emerging Market Spotlight, a podcast series from HSBC.
00:00:38
Speaker
The emerging markets landscape is more complex than ever at a time of divergent monetary policy, high commodity prices, supply chain disruptions, and geopolitical tensions.
00:00:52
Speaker
Join us as we speak with world's leading institutional investors, experts, policymakers and thought leaders to explore the challenges and opportunities.
00:01:03
Speaker
Make sure you subscribe to HSBC Global Viewpoint and stay up to date with new episodes.
00:01:10
Speaker
Thanks for listening.
00:01:11
Speaker
And now on to today's show.
Digital Innovation in Markets
00:01:18
Speaker
Hello, and thank you for joining.
00:01:21
Speaker
I have the pleasure of starting off the conversation, which is going to be focused on digital innovation in markets, Web3, NLP, which is natural language processing, AI, artificial intelligence, blockchain, and more.
Introduction of Digital Innovation Leaders
00:01:37
Speaker
With that, my name is Jeff Wertheimer.
00:01:39
Speaker
I'm responsible for HSBC's e-sales efforts across markets.
00:01:43
Speaker
And I have the pleasure of being joined by some of the bank's senior most
00:01:48
Speaker
leaders that are driving innovation in markets for HFPC.
00:01:53
Speaker
Just quick introductions.
00:01:54
Speaker
We have Mark Williams.
00:01:57
Speaker
Mark is a managing director, part of the GFX e-risk team, also the global head of FX partnerships and propositions.
00:02:05
Speaker
I think interestingly for this conversation, he has experience trading operations technology, been a COO, a good person to help us figure out how to get into the next generation of markets.
00:02:16
Speaker
Also has a lot of experience with transformation programs.
00:02:18
Speaker
And I have to highlight it, Mark, because I saw it.
00:02:21
Speaker
His job is to assess the use of ABCDE, which is AI blockchain cloud data and ecosystem.
00:02:28
Speaker
So very cool, Mark.
00:02:29
Speaker
And thanks for joining us.
00:02:30
Speaker
Next, we have Dr. Ash Booth.
00:02:32
Speaker
He's the head of artificial intelligence for markets and security services.
00:02:38
Speaker
He has a data science background, also an entrepreneurial background, and has good experience working at
00:02:44
Speaker
hedge funds as well.
00:02:46
Speaker
Perhaps most importantly, he has a PhD in the application of machine learning to algorithmic trade execution.
00:02:53
Speaker
And last, but certainly not least, is Asif Sharani.
00:02:56
Speaker
So Asif runs the EMEA syndicate desk in London, and also the DCM business for the public sector globally.
00:03:03
Speaker
So Asif, I think you're probably quite busy.
00:03:05
Speaker
You've been with HSBC for a while.
00:03:08
Speaker
And I think for this conversation, the most
00:03:12
Speaker
notable pieces where you were part of the IBOARD transition was obviously a major undertaking at a large bank, um, in, in EMEA, DCM.
00:03:21
Speaker
Um, and also you're now spearheading the digital transition for capital markets, which again, I think is a big part of what we're talking about today.
HSBC's Digital Currency Strategy
00:03:28
Speaker
Uh, but Mark kicking off, um, with a pretty broad topic and our first couple of buzzwords of the day, digital currencies and assets.
00:03:37
Speaker
It's a, it's a broad topic.
00:03:38
Speaker
It's a hot topic.
00:03:40
Speaker
Um,
00:03:41
Speaker
you can't really escape without seeing it on a reasonably daily basis.
00:03:45
Speaker
When we think about the whole landscape, just in your view, how should our audience and our clients be thinking about the landscape?
00:03:54
Speaker
Well, thanks very much, Jeff.
00:03:56
Speaker
And hello, everyone.
00:03:57
Speaker
I think...
00:03:58
Speaker
There's a few things with how we look at digital currencies and assets.
00:04:02
Speaker
And first and foremost, financial services is going through its blockbuster to Netflix moment.
00:04:08
Speaker
So the way that we look at digital currencies and assets at HSBC is we look at it as a three plus one, but we look at central bank digital currencies.
00:04:15
Speaker
And we've been providing research papers and a number of different experiments with CBDC since 2017.
00:04:21
Speaker
So it's not a new topic for us.
00:04:23
Speaker
Secondly, we look at stablecoins.
00:04:25
Speaker
At the moment, we're keeping a watching brief on that.
00:04:28
Speaker
We're looking forward to seeing some robust regulation come in place before stablecoins can be used more broadly throughout the digital assets and currency space.
00:04:38
Speaker
And thirdly, we look at cryptocurrencies.
00:04:41
Speaker
As a bank, and this is true for all our peers across the street, we do not touch the cash side or the underlying, but we do look at the derivative side of things.
00:04:51
Speaker
So, that's where we look at exchange-traded products that are traded on regulated exchanges, for example, futures on CME, and it's traded in fiat currencies.
Tokenizing Assets with Blockchain
00:05:03
Speaker
And the fourth one or the plus one is probably one of the more important ones today.
00:05:07
Speaker
And Asif will chime in on later on is looking at tokenization.
00:05:11
Speaker
So we're looking at how do we tokenize bonds?
00:05:13
Speaker
How do we tokenize gold?
00:05:15
Speaker
And how do we put these new stores of value and payments onto distributed ledger technology or blockchain?
00:05:23
Speaker
I think everybody, including me, knows what crypto is.
00:05:28
Speaker
CBD, if you've just covered, right, but maybe worth a second to explain them.
00:05:32
Speaker
And also, you've used the term tokenization.
00:05:35
Speaker
But if we could just give a little bit of a definition for what they are, I think might help us understand how it all hangs together.
00:05:42
Speaker
So on tokenization, that's where we look to do a or tokenize a gold bar, for example, and we'll have a digital representation of that gold bar on distributed ledger technology or blockchain.
00:05:56
Speaker
Or in Asif's case, that's where we're looking to tokenize a bond and put that onto
00:06:04
Speaker
onto blockchain technology.
00:06:05
Speaker
And we're using blockchain or distributed ledger technology as a safe, immutable transport layer for streaming, going back to our Blockbuster to Netflix moment, for streaming financial services and products to our clients in a safe, immutable way.
00:06:22
Speaker
And when we do that, that helps us on a number of different levels.
00:06:26
Speaker
Firstly, removing a lot of operational friction, improving transparency,
00:06:32
Speaker
workflow of those financial services as they move along the distributed ledger technology and also audit trail.
00:06:39
Speaker
So, we know precisely where the bond is and the cash that's associated to the bond or within foreign exchange when we're looking at FX settlements, knowing precisely where that foreign exchange deal is from time of deal capture through to settlement.
CBDC Euro Bonds Experiment
00:06:55
Speaker
Another good example with that is central bank digital currencies, looking at an experiment that we did last year with Banque de France, where we issued, or Banque de France issued a CBDC euro bond in the primary market.
00:07:11
Speaker
We then stored that in our digital vault, and we sold that to one of our clients in the secondary market.
00:07:19
Speaker
And then the following day, we rolled the experiment forward,
00:07:23
Speaker
And we received coupon payment from Banque de France and per our client's standard settlement instructions,
00:07:30
Speaker
we did a foreign exchange conversion to another synthetic CBDC and then sent that into their bank account.
00:07:37
Speaker
So when we're looking at CBDCs and what we're trying to solve for there, that's looking at how do we solve the Rubik's Cube of CBDCs and that is wholesale, retail, token-based, account-based, domestic and cross-border.
00:07:50
Speaker
So that was a really good way of experimenting.
00:07:53
Speaker
And then for the markets folks, what was
00:07:55
Speaker
Really interesting and cool with that experiment was that was across primary markets, secondary markets, and
Blockchain Advantages in Financial Services
00:08:01
Speaker
also FX.
00:08:01
Speaker
So it looked at the full lifecycle of that particular digital instrument as it flowed through that lifecycle.
00:08:09
Speaker
the advantages of blockchain.
00:08:11
Speaker
Clearly, there's a lot of advantages that Mark mentioned very briefly, but to add to the increased transparency and efficiency that we've seen for DOT and blockchain, there's also many other things that you could add to it.
00:08:24
Speaker
One from a financial market perspective is clearly
00:08:28
Speaker
improved capital optimization, reduced counterparty risk.
00:08:31
Speaker
And all this predominantly comes from the technology that exists on DLT and the fact that we can have instant settlement.
00:08:38
Speaker
So shorter settlement cycles, this comes in bonds or trading any assets really, and bonds is my specialty.
00:08:44
Speaker
So I'll use that as an example here.
00:08:46
Speaker
But when you have shorter settlement cycles, you have reduced counterparty risk.
00:08:50
Speaker
That's fairly obvious.
00:08:51
Speaker
But you also have increased capital efficiency, in particular for banks.
00:08:54
Speaker
And
00:08:55
Speaker
I like always giving the example of primary markets, which again is what I do on a daily basis.
00:09:00
Speaker
You normally have a primary bond transaction settled T plus five in terms of settlement cycle from the trade date five business days after that bond is created and actually is in the settlement systems.
00:09:13
Speaker
We could achieve with DLT and using blockchain atomic settlement that would allow us
00:09:18
Speaker
to settle instantaneously.
00:09:20
Speaker
So T plus zero settlement cycles could come the norm as long as the rest of the ecosystem moves to a more efficient technology, which again, blockchain would provide.
00:09:30
Speaker
So that means as a bank, normally we would have to set aside capital for five days.
00:09:34
Speaker
In that example here, we don't have to set any capital aside.
00:09:38
Speaker
there is no risk of us from a counterparty perspective.
00:09:41
Speaker
We have more capital to play with that we could put into more efficient use.
00:09:46
Speaker
So you have a huge amount of not only financial benefits, but also efficiency gains that Mark described.
Benefits and Growth of Tokenization Post-Crypto Crash
00:09:54
Speaker
And just whilst we're speaking about tokenization as well,
00:09:57
Speaker
It's a hugely interesting field and Mark's work and the team's work on the gold tokenization or our work on a bond tokenization platform.
00:10:06
Speaker
I think this is really game changing and we're seeing a lot more from the investor community, a lot more asset managers looking at how to tokenize various different assets.
00:10:18
Speaker
And one of the benefits is that you can scale your operations, but you can also fractionalize assets and that allows for a better distribution.
00:10:26
Speaker
After this year's crypto crash, which is something probably everyone in the investor space is aware of,
00:10:32
Speaker
Is there still appetite in the market for growth in this sector?
00:10:37
Speaker
I think it depends.
00:10:38
Speaker
It depends what you're defining as a sector.
00:10:41
Speaker
The way we look at the technology is that it's something that compares to the legacy systems.
00:10:46
Speaker
And this is legacy systems not only at banks, but financial institutions across the globe.
00:10:53
Speaker
Blockchain has many advantages when it comes to comparing to the legacy systems.
00:10:56
Speaker
And again, we'll touch upon those in more detail.
00:10:59
Speaker
So we're talking