ECB Executive Calls for Embracing DLT and Tokenization to Unite Europe’s Fragmented Capital Markets

Piero Cipollone, a member of the European Central Bank’s (ECB) Executive Board, has urged Europe to harness distributed ledger technology (DLT) and digital assets to create a cohesive capital markets union. Speaking at the Bundesbank Symposium on the Future of Payments on October 7, Cipollone outlined the potential of digital technologies to transform Europe’s fragmented financial system, thereby reducing intermediation costs and enhancing market efficiency.

The Challenge of Fragmentation

Cipollone pointed out that Europe currently operates with 35 distinct listing exchanges and 41 trading platforms, contributing to an inefficient and divided financial landscape. He acknowledged existing efforts like the TARGET2-Securities platform, which aims to harmonize securities settlements across Europe. However, he noted that regulatory barriers and inconsistent legislative frameworks continue to obstruct meaningful integration.

Without harmonized regulations concerning asset custody, tax processes, and regulatory oversight, Europe is unable to fully capitalize on the synergies offered by a unified capital market. Cipollone emphasized that this fragmentation compromises the competitiveness of European markets on the global stage, calling for expedited efforts to align regulations across EU member states.

As he stated: “The lack of a unified supervision or a permanent safe asset has left Europe’s capital markets fragmented.”

The Promise of Tokenization

Cipollone highlighted the importance of tokenization as a transformative force for the financial sector. By issuing assets on DLT, tokenization presents an opportunity to create a more efficient system from the ground up, circumventing traditional market inefficiencies. He noted that digital assets operate on a decentralized network of traders rather than relying on a central database, which could lead to a shift from centuries-old bookkeeping practices to real-time, decentralized transactions.

Cipollone remarked: “This could mark the shift from centuries-old bookkeeping systems to a future of decentralized, real-time transactions.”

He revealed that over 60% of EU banks are exploring DLT solutions, with 22% actively using these applications. However, he cautioned that the full potential of DLT remains largely untapped.

Urging Swift Action

To support the transition to digital markets, Cipollone called on public authorities to act decisively and ensure that central bank money serves as a key settlement asset in this transformation. He proposed the creation of a European ledger, a shared platform where digital assets, central bank money, and commercial bank money coexist on interoperable systems. This initiative would enable financial institutions, central securities depositories (CSDs), and market participants to operate directly on a unified infrastructure, thus lowering barriers to entry and promoting capital market integration.

Cipollone warned that failing to coordinate DLT adoption could further entrench existing fragmentation, as individual countries and institutions may develop isolated platforms. He stressed the need for closer collaboration between regulators, central banks, and market participants to position Europe as a leader in building a unified digital capital market.

He concluded: “The transformative potential of tokenization goes beyond efficiency. By acting now, we can shape an integrated financial ecosystem that will serve Europe’s markets well into the digital future.”

Conclusion

Cipollone’s call to embrace DLT and tokenization underscores the urgent need for Europe to unify its capital markets. By leveraging these technologies, the continent can enhance its competitiveness, improve efficiency, and lay the groundwork for a more integrated financial future. The time for action is now, as the potential benefits of a unified digital capital market are too significant to overlook.