Shaping resilient and innovative capital markets

Europe’s capital markets are undergoing significant transformation, driven by the rise of tokenised finance and the growing role of non-bank financial institutions. At the European Capital Markets Institute's annual conference, Deputy Governor Vasileios Madouros of the Central Bank of Ireland highlighted the urgent need to establish robust foundations that foster integration, resilience, innovation, and trust in these evolving markets.

Tokenisation, while still at an early stage, is moving beyond pilot phases to practical applications. It promises benefits such as faster settlement times, reduced counterparty risks, and innovative financial services. Furthermore, tokenisation could help overcome the long-standing fragmentation within European capital markets. However, Deputy Governor Madouros stressed that technology alone will not suffice. Instead, a coordinated evolution of legal, regulatory, operational, and monetary frameworks is essential to maintain a trusted and resilient financial system.

To this end, the Central Bank plans to undertake several initiatives:

• Launching a series of focused, time-bound sprints with industry participants to address specific aspects of tokenised finance.
• Introducing a Tokenisation Access Point to provide clearer engagement pathways for market actors, particularly regarding the application of current rules and regulations.

These measures aim to anticipate emerging policy challenges and enable a flexible, agile regulatory response. Regarding non-bank finance, Deputy Governor Madouros acknowledged its expanding systemic importance as Europe enhances capital market financing channels. Diversifying sources of financing offers macro-financial advantages but requires that these non-bank intermediaries remain resilient to shocks. He identified three priority areas for action:

1. Enhanced surveillance focusing on the resilience of core markets, including developing frameworks to assess whether markets can continue to provide financing during periods of stress, complementing existing banking sector assessments.

1. Regulatory evolution for non-bank finance by fully implementing internationally agreed reforms, such as Financial Stability Board (FSB) recommendations on open-ended funds and leverage in non-bank entities.

1. Crisis management improvements, including strengthening powers to manage failures of non-bank payment providers and carefully considering liquidity support mechanisms for non-banks.

These steps underscore a comprehensive approach to building capital markets that are both innovative and resilient, ensuring they can support Europe’s economic ambitions sustainably. For further information, contact Úna Quinn at 086 067 4008 or [email protected]. Read the full speech on the Central Bank of Ireland’s official website.