Hello everybody, welcome back to another edition of C ‘n’ F Speaks, a series of interviews which we hold with speakers at our forthcoming events. Today, it's my pleasure to have with me Sabih Behzad, who is the Head of Digital Assets and Currencies Transformation at Deutsche Bank. Sabih is going to be speaking at our Tokenisation and Digital Assets Financial Leaders’ Summit, which is being held at the Guildhall, London as part of City Week 2024.

Sabih, welcome.

Thank you so much for having me here today, Maurice.

Very good to speak to you.

What are the key developments in DLT and blockchain technologies in financial and banking services at the current time?

I think, Maurice, it's a really exciting time actually to be working in this space because there's a whole host of things happening, probably way too much to talk about in this short interview, but I would probably turn the attention to two big areas. Firstly, developments in asset tokenisation. It's something that's been talked about a lot for a number of years, but it's really something that's gaining more and more momentum, and we're seeing more and more corporate bonds, for example, being tokenised and issued, so we're seeing corporates very much embrace the technology, but we're also seeing sovereigns also look at asset tokenisation as a really interesting topic.

We saw just a few weeks ago, for example, the HKMA issued a tokenised bond that was nearly $800 million, so a substantial increase in the size and scope of the type of issuances. So, that's a huge development on the asset tokenisation side. On the money side of things, cash on chain has for a while been, both a barrier and also an area that's been crying out for developments.

Obviously, we've seen crypto and stablecoin develop over the last few years. I think the exciting area is actually for banks in the area of tokenised deposits. We're seeing more and more industry momentum essentially around banks taking traditional deposits, tokenising them, and making those available to their clients and customers.

We're also now seeing large financial institutions essentially join either experimentations with respect to that or actually seek to build out products and services. One important project I'd probably point to, was an announcement just over a week or two ago by the BIS, the Bank of International Settlements, that's announced Project Agora, which is a very ambitious project involving about seven central banks and up to 20 or 30 commercial banks that will also be part of that initiative. So, I think it's an area that has an unbelievable amount of activity happening at this precise moment.

Fantastic, a wonderful space to be working in.

Could you tell us more about what Deutsche Bank itself is doing, what its offerings and recent projects are in the digital asset area?

Sure, happy to. There's, broadly speaking, four areas that interest us.

The first is digital asset custody. We announced last year that that was an area that we were very interested in and we're building out our capability. We're working with a company called Taurus. It's based in Switzerland to provide the backbone of that technology, but there's a lot of development that's also taking place in-house and we've applied for a license to essentially to be able to operate that digital asset custody platform. So that's a key initiative for Deutsche Bank and we think it's foundational to a lot of the other work that we want to do.

The second area is asset tokenization, so very much linked to the areas we were just discussing, tokenized bonds, tokenized securities. We see that as being an area of huge development, so we're working on a number of projects, both internally, but also working with a number of clients who are interested, again, predominantly in the corporate bond space. So that's a big area of momentum.

The third area is digital cash or on-chain cash. Again, linked to what I was saying earlier, deposit tokens are a particular area of interest, but obviously Deutsche Bank is very involved in discussions around CBDCs with the wholesale and retail being the largest euro clearer. It's an area that we certainly want to be at the table and discussing developments in that space.

And the fourth area is the use of blockchain in DLT, predominantly for post-trade processes. So, can we take the traditional processes we have today, the traditional business we have today, and can we make that faster, cheaper, more efficient? Ideally for the benefit of our clients.

It's truly revolutionising finance, isn't it?

I mean, how far do you think that tokenisation is going to go? You mentioned quite a few different assets in bonds and equities and so on, but how far do you think tokenisation is set to go? Where are the limits on what sorts of assets can be tokenised?

I think that's a superb question, Maurice, one that I contemplate from time to time. I think the way I kind of think about it is, we're very much at the infancy of that. We're the infancy in terms of the asset classes we're thinking about, but also what we can do with the power of tokenisation.

And I think what you'll find is the majority of use cases that people think about tend to go to places we know. So, it's starting with corporate bonds, private debt is another area that gets talked about a lot in the industry. But you've also seen projects on things like the tokenisation of gold, for example, which is very interesting.

Real estate is another area which is an area which is ripe for exactly this type of technology. So, I think the asset classes will evolve. Where we're seeing most of the activity today is in the place where financial institutions, in particular like ours, already understand the asset, understand how it is issued, traded and settled. But I think the evolution will move into those more real-world assets over time where perhaps there just isn't the trading volume and the liquidity today that we can eventually have out of tokenisation.

So, I think that's one dimension. If you like, that's horizontal in my mind. The vertical I think here, is what the benefits tokenization provides.

And I think for now, the way people are thinking, it's really, as I said about, can I do the same thing that I do today, but can I do it cheaper and faster and more efficiently? That by itself is a great and valid reason to explore this technology. But I actually think, because of the programmable nature of the assets that you end up with, there are a number of use cases that we probably cannot even contemplate today that you will be able to service and fulfil. And there are all sorts of things that people talk about.

For example, people talk about automated payments where payments can actually reach the destination, whether it's the taxman, whether it's the end user, whether it's a third party through just one payment transaction, because everything is within that payment programmatically put in place. Another area, similarly, Maurice, is around asset tokenisation. The discussion that often comes up is we have for example, with our bond issuances, we tend to space them out.

There's no reason why we couldn't use to almost a continuous bond issuance cycle. And similarly, on the asset servicing leg, there's no reason why you couldn't eventually move to having coupon payments that were made hourly or by the minute, because the technology allows for that to happen. So again, these things are somewhat forward reaching.

I don't think we're there yet. But I think that's just some flavour of the type of opportunities that will exist in the future.

Yeah, in the sense from what you're saying, the sort of limitations that have traditionally applied, like quarterly, half yearly coupons, or annual coupons, the ability to pay in real time, as and when, or the nature of finance could be rethought because of this technology.

Absolutely. And, you know, the discussion that often comes up, it's akin to a computer. That's really what we're putting in place here.

When the computer was first invented, I don't think we had all of the use cases mapped out and understood exactly what applications it could be used for. And I think that's very much where we are with tokenisation. We're at the start, we're at the infancy, we're going from chalk and blackboard to being able to move on to a spreadsheet that was essentially the equivalent of what the computer provided.

This is the same evolution here. We're moving from our traditional processes into automated ones, but we're just at the infancy, there's a lot more value to be extracted in the future.

Exciting times.

I mean, going back for a moment to, you mentioned custody. I mean, custody is obviously a hugely competitive space in a traditional sense of the word, and I guess it's fairly saturated in digital assets as well. Now, what sort of strategy do you, Deutsche Bank, have to stay ahead in this new field?

That's a great question, Maurice.

I think the way I'd answer that, there's a couple of things I would say. Firstly, we are obviously a custodian on the traditional side of things, and therefore it's a natural adjacency for us to move into the digital assets space. We've also been around for a pretty long time, and we have clients that really trust and value that relationship.

I think if you're safekeeping your assets with a counterparty, you want to ideally have had a relationship with them for a number of years, and you want to feel like they'll be around in the distant future as well. I think that's one thing that we hear consistently from clients we speak to, that today they have options, as you said, around digital asset custody, but they perhaps aren't with as established players as ourselves. I think that's one big value.

The second thing, of course, is the security, the need to stay ahead of regulation, the need to ensure there's a way to also join the client's view for their traditional assets, with their digital ones. What I see over time is much more fungibility between traditional assets and digital assets. Again, we're not there yet, but I think that's the direction we're heading in.

I think that's the other opportunity for us. Finally, to answer your question, Maurice, as I said earlier, for us, I think it's not just about building up the custody. Custody is a very foundational piece of work for us.

What it's doing is it's laying the rails for us to be able to operate all those other use cases I talked about. It helps us build a risk compliance and control infrastructure that we're going to need in order to do asset tokenisation, especially at scale, or do cash on chain, etc. For us, it's an absolutely fundamental part of our strategy.

Okay.

One last question, if I may, Sabih. When you consider the potential, you've spoken with enthusiasm about the potential developments in this field. Is regulation an enabler or a blocker of the realisation of the potential in this field?

Firstly, I'd say that the discussion with regulators is very healthy and has moved on considerably from the early days when I think there was probably a level of confusion and lack of certainty about what any of this technology provided. I think the quality of discussion is actually very strong. That's the first thing.

The second thing I'd say is, and again, there's far brighter minds than I, that are working the problem, but you can see from what regulators are pushing out there, they are trying to encourage entrance into the space, both established ones and new ones. You can look, for example, at the EU DLT pilot regime that's open to try and grow the sector. Similarly, the digital security sandbox that the UK FSA and Bank of England announced recently is another indication that actually regulators see the value in this technology in this space and are openly inviting multiple players to come in and play.

I see regulators as being an important, if I can use the word partner in a non-traditional sense, a partner in this space because they too have a vested interest in developing financial services, especially where there's going to be value for the end consumer.

Yeah, absolutely. Time's up, sadly, for our interview.

For our viewers, just to say that if you'd like to hear more from Sabih, and the other speakers we have at the conference, please do have a look at www.cityweekuk.com where you'll find further information and be able to register to attend. So once again, it's the Tokenisation and Digital Assets Financial Leaders Summit, part of City Week being held at Guildhall, London on the 21st of May.

Sabih, thank you so much for being with us today.

Thank you so much, Maurice, for having me.