The EUI Florence School of Banking and Finance recently hosted a policy discussion on Digitalising the Capital Markets Union (CMU).^[1] Bringing together voices from the private sector, policymakers and academia, the debate explored the role of Distributed Ledger Technology (DLT) and asset tokenisation in advancing the Capital Markets Union in Europe.

The event was moderated by Pierre Schlosser and the speakers included Isadora Arredondo (Hedera), Louis Bertucci (Institut Louis Bachelier), Leonardo Giani (EUI), Tim Meirer (KfW Group) and Andrew Whitworth (IE Madrid & EUI).

DLT provides the infrastructure for tokenisation and enables secure creation, recording and transfer of digital tokens. Tokenisation refers to the process of converting ownership and rights to an asset (often called a real-world asset or RWA) into a digital token on a blockchain where its ownership can be divided, transferred and traded more efficiently and securely. Tokenising real-world assets thus has the potential to improve the way capital markets operate by making them more accessible and more efficient. For this reason, tokenisation and digitalisation should form one of the key pillars of the EU’s CMU initiative.

The CMU was designed to deepen financial integration and improve access to capital in EU member states. It is both a financial and a political project as it is intended to underpin the EU’s strategic autonomy and enhance its competitiveness in an increasingly digital global economy. In this regard, tokenisation and digitalisation more generally are not merely technical developments but can be strategic tools at the disposal of the European Union in pursuit of its broader political and economic vision.

Internationally, the potential benefits of tokenisation have been noted by SEC Commissioner Hester Pierce, who recently laid out an optimistic vision of tokenisation through increased access to financial instruments and improved liquidity, and thus enhanced efficiency of financial markets. Many other countries are also making progress in this area. The UK has created a digital security sandbox (DSS) and HM Treasury has announced plans to create a Digital Gilt. The Abu Dhabi Free Trade Zone now has a framework for security token offerings. Singapore has a sandbox regime for tokenisation and Japan has developed a regulated market for tokenised securities.

In the light of this, the EU finds itself in a complex international environment. Other global actors are rapidly shaping their own models of digital finance – each with different implications for governance, privacy and market control. If the EU does not proactively engage with these developments, it risks becoming a rule-taker in a domain it has the capacity to influence.

Therefore, the EU should develop a harmonised regulatory framework, invest in digital infrastructure, and coordinate closely with stakeholders to ensure interoperability and legal clarity. EU-level legislation may be needed to provide the legal certainty and harmonisation required for equal DLT adoption across member states. Done well, an EU-wide tokenisation framework could be considered a form of ‘28th regime’ for capital markets, which would help overcome persistent Single Market fragmentation caused by Member State divergence. DLT-based markets could offer parallel digital infrastructure that operates above national regimes and facilitates seamless cross-border transactions. This would, however, require strong political will and a carefully designed legal framework.

As the EU shapes the next phase of its financial and political integration, tokenisation should be positioned at the heart of the discussion. The technology exists and it is being embraced in different ways and at different speeds around the globe – the EU and its member states cannot afford to be left behind and have a great deal to gain if they use this opportunity to further the CMU project.

[1] Event: https://fbf.eui.eu/events/?id=578790