Market participants and regulators discussed digital innovation in Europe at AFME’s  5th Annual European Financial Integration Conference and said interoperability is key for the nascent ecosystem.

Fiona van Echelpoel, deputy director general, directorate general market infrastructure and payments at the European Central Bank, spoke on a panel at the AFME conference on 20 May in Frankfurt.

What’s the role of tokenisation and DLT in market integration? Panel 2 at #EFI2025 features speakers from @Protiviti @banquedefrance @ecb @BNYglobal & @EuroclearGroup exploring if new infrastructure can make markets truly pan-European. pic.twitter.com/9hxNGjTAYM

— AFME (@AFME_EU) May 20, 2025

van Echelpoel said the ECB’s exploratory work last year was very successful from its own perspective, and from the perspective of its partners. Between May and November 2024 the Eurosystem conducted exploratory work on new technologies for wholesale central bank money settlement with 64 participants – comprising central banks, financial market participants and distributed ledger technology platform operators – and conducted more than over 50 trials and experiments, including settling transactions recorded on DLT in central bank money.

In. February this year the ECB said the Eurosystem will develop and implement a safe and efficient platform for such settlements in central bank money through an interoperability link with TARGET Services as soon as possible. In addition, the Eurosystem will look into a more integrated, long-term solution for settling DLT-based transactions in central bank money, including international operations, such as foreign exchange settlement.

van Echelpoel said she hopes that the ECB will make it clear that the DLT pilot regime will continue.

“For the longer term, there is the possibility of a unified ledger where central bank money, commercial bank money, tokenized assets and Euro stablecoins can live together,” she added. “This solution will take time.”

The ECB will be reaching out to market participants to discuss this longer-term possibility.

Last week, the ECB organized a roundtable on regulating tokenization and van Echelpoel said supervisory convergence is important. She added: “It is in nobody’s interest to have different regimes in different countries, and a race to the bottom doesn’t help anybody.”

The Banque de France took part in the ECB experiments and has conducted 40 DLT experiments since 2020 in relation to wholesale central bank digital currency, focusing on fixed income transactions and cross-border transactions.

Emmanuelle Assouan, director general financial stability and operations and chair of the Banque de France Climate Change Centre, said on the panel: “We are convinced that blockchains can indeed provide a concrete answer to some of the long standing frictions that the Capital Markets Union wants to address as they offers faster, cheaper and more transparent way of doing transactions.”

For example, the green transition requires finance that meets certain environmental, social and governance criteria and Assouan said using blockchains should be able to handle those transactions more efficiently by embedding ESG data in smart contracts.

Assouan said there are some prerequisites for blockchains to be effective. She argued that the first is that central banks need to maintain the monetary system from a financial stability perspective. Second, regulators have to maintain a safe landscape for private actors and private forms of money, notably stablecoins.

“We should work more on integration as next year we may offer a first form of a wholesale central bank digital currency,” Assouan added.

Sebastien Danloy, chief business officer at Euroclear, said on the panel that the firm worked with the  Banque de France for a bond issuance on the financial market infrastructure’s fully digital platform.

“We see this public and private collaboration in action and it is something that we absolutely need to continue,” said Danny. “Players like ourselves need to create interoperability between the digital world and legacy world, including using those assets as part of collateral management programs.”

Last year Euroclear, DTCC, the US post-trade infrastructure  and Clearstream, Deutsche Börse’s central securities depository, published a blueprint for establishing an industry-wide digital asset ecosystem to drive acceptance of tokenized assets.

Danloy also warned that the post-trade landscape in Europe is very complex and new technology by itself will not reduce that complexity as there are legal, tax and regulatory differences.

Gesa Johannsen, executive platform owner global collateral platform at BNY, agreed that fragmentation in the current system needs to be addressed and that new technology can be a facilitator, but is not going to overcome issues by itself.

Johannsen said existing assets need to be tokenized in order to overcome fragmentation and a new ecosystem combining different types of assets is needed.

“We will enter a phase where existing traditional assets, tokenized assets and native digital assets will co-exist,” she said. “We need to make sure we create an ecosystem that can create liquidity across those instruments.”

She warned that if all these assets cannot be mobilized as collateral, there will not be sufficient secondary market liquidity.