Blockchain / Distributed Ledger Technology - DLT initiatives from an operations perspective - ECB OMG Meeting 2019-09-04 André Kolb, Bernhard Brand | Commerzbank AG | Group Banking & Markets Operations Commerzbank AG | Group Banking & Markets Operations | DLT / Blockchain | André Kolb, Bernhard Brand | 2019-09-04 Distributed Ledger Technology / Blockchain Blockchain / DLT Basics • Electronic Register – Electronic Records • Shared Ledger - decentralized Blockchain / • Data / Transactions are DLT - documented in chronological order - distributed across multiple sites Blockchain Types Principles Public Private • No central entity • No verification by trustee Unpermissioned Permissioned • Transparency and Availability Characteristics (real-time) for participants Decentralized Database • Immutable Data => Finality Validation, Encryption (Hash) Fundamentals • Tokenizing of Assets Consensus (Proof of Work, Proof of Stake) • Automated execution of agreed conditions • Potential for cost savings, increased efficiency Smart Contracts DLT offers high potential for reducing established intermediaries and existing business models => Disruption Commerzbank AG | Group Banking & Markets Operations | DLT / Blockchain | André Kolb, Bernhard Brand | 2019-09-04 2 Distributed Ledger Technology / Blockchain DLT in Commerzbank Operations Core Topics 2019 / 2020 Principles / Key Objectives • CASH ON LEDGER Commerzbank • Client-centric DLT Lab • CAPITAL MARKETS • Create added value for our customers • TRADE FINANCE • First mover • KYC / DIGITAL IDENTITY Cooperation with DLT Lab • Close collaboration since June 2016 • Support of selected DLT Use Cases / Pilots including New Product Processes (NPP) Commerzbank Operations Our Motivation • Awareness of potential impacts on Operations (processes and services) Group Banking & Markets Operations • Pro-active participation and support • Enable future planning in Operations (resources, efforts, timelines, etc.) • Learning organisation – Knowledge, Change, Transformation Complementary • Member of German Bankers Association (BdB) – Working Group DLT • Member of EBF Blockchain Task Force Commerzbank AG | Group Banking & Markets Operations | DLT / Blockchain | André Kolb, Bernhard Brand | 2019-09-04 3 Distributed Ledger Technology / Blockchain Main Incubator - DLT Lab at a glance Facts & Figures 2015 Use 2019 >80 Cases The main incubator - a 100 % subsidiary of analyzed Commerzbank - supports the bank in its Foundation, technological transformation via three routes: learning* phase Path to production 2016 • Community building ~ 10 regularly in scope Developers/ • Ventures – strategic investment in tech startups >50 business analysts 12 • Prototyping – develop own prototypes on the basis of 12 technologies of the future Affiliates across segments/ Investment in global e.g. functions tech consortium Artificial 8 Intelligence Blockchain / DLT 2017 2018 Cloud Get real, Machine 4 POCs ready and Co-Heads Learning completed Big Data grow! 2 Robotics Open API https://main-incubator.com/en/prototype/ Source Facts & Figures: Commerzbank DLT Lab | Frankfurt / August 2019 Commerzbank AG | Group Banking & Markets Operations | DLT / Blockchain | André Kolb, Bernhard Brand | 2019-09-04 4 Distributed Ledger Technology / Blockchain Commerzbank DLT Lab - Road Map Road Map for DLT Lab Focus areas of Commerzbank’s DLT Lab in 2019 Application area & maturity Examples Maturity of Use Cases CAPITAL MARKETS Securities issuance and trading, (post-) PoC Pilot Production trading processes, FX, syndicated loans Production 2019/ 2020 TRADE FINANCE Open account, bank payment obligations, digital letter of credit Pilot PoC Pilot Production 2018/ 2019 Proto- PAYMENTS Plain payments and delivery vs. payment, type e.g. by using e-money 2017/ PoC Pilot Production 2018 POC 2016/ 2017 Time KYC/ ID MANAGEMENT Self-sovereign digital ID management for private persons, corporate KYC today PoC Pilot Production Source: Commerzbank DLT Lab | Frankfurt / August 2019 Commerzbank AG | Group Banking & Markets Operations | DLT / Blockchain | André Kolb, Bernhard Brand | 2019-09-04 5 Distributed Ledger Technology / Blockchain Main Incubator - DLT Lab => Commerzbank Operations support DLT Initiatives 2018 / 2019 Commerzbank Operations GS-BM Commerzbank DLT Lab / Operations Group Digital GS-BM Transformation & Strategy • 8 Areas • 18 Use Cases Operations Commerzbank Group Markets & Operations GS-BM Banking Operations (GS-BM) • 4 Areas Commerzbank • 10 Use Cases Operations GS-BM Commerzbank AG | Group Banking & Markets Operations | DLT / Blockchain | André Kolb, Bernhard Brand | 2019-09-04 6 Distributed Ledger Technology / Blockchain Commerzbank DLT Lab – Selected Initiatives 1 / 3 CAPITAL MARKETS Details on next slides next Details on Euro Commercial Paper Euro Commercial Paper Euro Commercial Paper Euro Commercial Paper MVP ISIN: DE000A1V4HP3 ISIN: FR0125350217 ISIN: XF0000C24384 APR 2017 SEP 2017 DEC 2018 JAN 2019 DLT platform provider DLT platform provider DLT platform provider DLT platform provider Repurchase Agreement Secondary Trade USD EUR / PLN FX Forward ISIN: DE000A1V4HP3 ISIN: DE000A1V4HP3 Deposit FEB 2019 Q1 2019 SEP 2018 MAY 2018 DLT platform provider DLT platform provider DLT platform provider DLT platform provider Source: Commerzbank DLT Lab | Frankfurt / August 2019 Commerzbank AG | Group Banking & Markets Operations | DLT / Blockchain | André Kolb, Bernhard Brand | 2019-09-04 7 Distributed Ledger Technology / Blockchain Commerzbank DLT Lab – Selected Initiatives 2 / 3 Euro Commercial Paper SEP SEPDEC SEPJAN 2017 20172018 20172019 Parties & Roles Issuer Investor Dealer None Platform Implemen- On Ledger On Ledger On Ledger tation Security simulated, ISIN: UK law, ISIN: LUX law, ISIN: DE000A1V4HP3 FR0125350217 XF0000C24384 On Ledger Payments traditional traditional (E-Money by ) Source: Commerzbank DLT Lab | Frankfurt / August 2019 Commerzbank AG | Group Banking & Markets Operations | DLT / Blockchain | André Kolb, Bernhard Brand | 2019-09-04 8 Distributed Ledger Technology / Blockchain Commerzbank DLT Lab – Selected Initiatives 3 / 3 Selected Press Releases (Extracts) Feb. 2019: EURO Commercial Paper on DLT Dec. 2018: Euro Commercial Paper on DLT Feb. 2019: Repo Transaction on DLT Commerzbank AG | Group Banking & Markets Operations | DLT / Blockchain | André Kolb, Bernhard Brand | 2019-09-04 9 Distributed Ledger Technology / Blockchain DLT Initiatives - Commerzbank Operations Selected DLT Initiatives 2019 with support from Operations Units 01/2019: Euro Commercial Paper (ECP) – Pilot Trade Secs. Issuance (Lux. Law) – Distribution - Redemption of ECP Partners: Siemens, Continental 03/2019: Repo Pilot Trade (Secondary Market) Focus: Securities and Cash on ledger Partner: Deutsche Börse / Eurex Ongoing: HQLA – Exchange for Collateral Exchange of Digital Collateral Record (tokenized Secs.) for High Quality Lquid Assets (HQLA) Partners: ING, CS, UBS, CIBC, Dt. Börse, Commerzbank Ongoing: Digital Custody Solution (DCS) Internet of Things (IoT) – Asset tokenizing, Asset deposits 24/7 for Corporate Clients Credit Agency Services (Coba Lux.) GS-BM driven Syndicated Loan Administration via DLT initiative Platform LenderComm (Finastra) – Tests planned Commerzbank AG | Group Banking & Markets Operations | DLT / Blockchain | André Kolb, Bernhard Brand | 2019-09-04 10 Distributed Ledger Technology / Blockchain DLT / Blockchain => Challenges - Opportunities Legal certainty – pre-requisites (Commerzbank Operations view) Regulatory • Clear Guidance for DLT based applications – Level Playing Field – Sandbox Approach Legal • Modification of existing laws and regulations most likely (e.g. CSDR, SFTR) Tax • Harmonisation of EU jurisdictions and in a global context => competitive aspects • Regulatory Reporting, Tax Aspects • DLT Scalability and Performance => Standardization, Taxonomy • Participants to agree on / determine a dedicated DLT Technology Technical • Interoperability Functional • Dual Infrastructure => e.g. existing traditional securities vs. DLT based securities Securities Value Chain: Pre-Trade – Trade – Post Trade => gradual approach on DLT? • Security Aspects – Access to privat keys • Verification Services – e.g. specification of user rights (Read and Write) Processes › S • High Data Quality Blockchain / DLT requires harmonisation of data and processes Commerzbank AG | Group Banking & Markets Operations | DLT / Blockchain | André Kolb, Bernhard Brand | 2019-09-04 11 Distributed Ledger Technology / Blockchain DLT / Blockchain - Selected News / Insights Objectives The Federal Government of Germany has set up a Blockchain Strategy to promote digital innovations and strengthen innovative technologies Jan 2019 BaFin approval of Securities Token Offering in Germany for the first time Regulatory Developments Bitbond Bearer Bond: Issuance volume: 100 Mio. EUR, 10 years duration, FRN DE Feb 2019 German Ministry of Finance (BMF): Online Consultation DLT / Blockchain Mar 2019 German Ministry of Finance (BMF): Key note “electronic securities” Legal Framework for DE issuers, starting with debt instrument i.a. omission of physical documents (global certificates) foreseen • Tailor made DLT Use Cases continued => Pilot Trades / Transactions Commerzbank DLT Lab • Several Corporate Clients approach Commerzbank asking for DLT/Blockchain- based solutions (e.g. Issuance of Securities) Commerzbank AG | Group Banking & Markets Operations | DLT / Blockchain | André Kolb, Bernhard Brand | 2019-09-04 12 DLT / Blockchain Outlook 2019 and beyond 1 / 2 How can we improve from an