As institutional interest in digital assets continues to rise and the Association of National Numbering Agencies (ANNA) makes plans to use International Securities Identification Numbers (ISINs) to identify these assets, we caught up with Stephan Dreyer, managing director of ANNA, to review progress.
He sets the scene, saying: “We are seeing growing issuance of traditional assets in tokenised form using distributed ledger or blockchain technology. Primary activity is in bond markets, where banks including The World Bank, Santander and Société Générale have settled bond issuances on blockchain technology. Exchanges, including Swiss-based SIX Digital and the Stuttgart Stock Exchange are building out trading infrastructure for digital assets, and custodians such as Fidelity and State Street are offering services to the industry for cryptocurrencies and tokenised assets.”
Digital Asset Network, a provider of insights into the digital asset ecosystem, pitches the digital asset market as ‘a multi-trillion-dollar opportunity’. A survey by Fidelity Digital Assets shows that 91% of respondents that are open to exposure to digital assets expect to have at least 0.5% of their portfolio allocated to the new investable asset class.
Dreyer says: “With a better understanding of distributed ledger technology (DLT) and blockchain technology, more banks are looking at it digital assets for greater efficiency.”
Dreyer joined ANNA in January 2020 after 25 years at Bloomberg, and was instrumental in the ANNA Technology Taskforce (TF-22) that was set up to assess the role and scope of ISINs in respect to digital asset identification and provide recommendations on the rules and guidelines for assignment of ISINs to all kinds of digital assets such as asset tokens, payment tokens, utility tokens and hybrid tokens.
The taskforce completed its work in mid-2020 and made three recommendations to the ANNA board:
- Security tokens: TF-22 endorsed the assignment of ISINs for securities that are tokenised. While the guidelines for the ISIN ISO 6166 standard already have provision for the assignment of ISINs for financial instruments, the taskforce agreed that the principle for ISIN issuance should be technology agnostic, meaning that the type of technology used for issuance should not give rise to a different identification and classification system.
- Digital tokens used as referential instruments: Other token types were also considered, usually referred to as payment tokens or cryptocurrencies. It was agreed that these tokens fall under the category of being assigned an ISIN in the case where they are used as referential or underlying instruments. If a cryptocurrency is used as an underlying referential instrument for a financial instrument or a security, then the same type of identification approach should be applied.
- Implementation: Although the recommendations complete the work of the taskforce, it recognises that consistent implementation of its recommendations across National Numbering Agencies is essential to ensure a uniform approach on a global scale.
Since the recommendations were made, the first has been fulfilled with an ISIN being assigned to a security token.
Dreyer says: “We are now working on guidelines for assigning ISINs to non-financial or referential items, such as cryptocurrencies. The taskforce has gone back to validate the process of ISIN allocation for assets issued using DLT.” Amendments to the ISIN guidelines are proposed for adoption this month at the next ANNA General Meeting, which will clarify ISIN assignment to security tokens. Further amendments are scheduled for next summer on referential instruments.
To achieve the third recommendation of consistent implementation of ISINs to digital assets, the taskforce recommended that a permanent ANNA working group should be set up to focus on digital tokens and their representation in the ISIN guidelines. The working group will be a sub-group of the existing ANNA Working Group 2 that focuses on ISIN quality and guidelines.
The working group will also monitor how ISINs that identify referential data will interact with the Digital Token Identifier (DTI) standard. The DTI standard is an ISO standard that is due to be published in March 2021, followed by a DTI registry in June 2021. While the ISIN standard captures the data elements related to a financial or referential digital asset, the DTI will capture the technical aspects of a token, such as where it sits on the blockchain, its genesis block hash, UTC timestamp, and digital ledger type. By coupling the ISIN and DTI it is possible to have a full picture of a digital asset.
Looking forward, Dreyer concludes: “Down the road, non-bankable assets such as mortgages, leases and art could be classed as digital assets. The importance of the ISIN standard is to provide efficiency, consistency and a streamlined way to complement existing practices and processes across all instruments. From a data management perspective, we can leverage a standard that has already been adopted and is used for regulatory reporting. ANNA is getting ready for a tokenised economy using an ISIN that is fit for purpose.”