Mitsubishi UFJ Financial Group (MUFG) (NYSE:MUFG) has established the Security Token Research Consortium (ST Research Consortium) to develop next-generation financial transaction services using blockchain technology.
Japan has emerged as a robust market for the development of blockchain technology. MUFG is one of the largest financial institutions in the world. The movement towards embracing digital securities is a strong endorsement of the tech as the future of financial services.
The security token consortium includes; Mitsubishi UFJ Trust and Banking Corporation, together with Mitsubishi UFJ Morgan Stanley Securities Co., MUFG Bank, and 21 other unnamed partner companies.
The Consortium will build a seamless infrastructure for automatic securities and fund settlement as well as the protection of investors’ rights using blockchain.
The Trust Bank has also applied for a patent in Japan for technology supporting the Service, according to MUFG.
The Consortium believes there is an ongoing diversification in financial transactions including digital assets and the rise of initial coin offerings.
In May 2019, Japan enacted a new law aimed at enhancing trust in financial services. In process now are revised regulations related to crypto-assets and clarity regarding security tokens.
The Trust Bank has reportedly conducted research on infrastructure related to custody, clearing, and escrow of digital assets, including crypto-assets, and is considering infrastructure and organizational structure for the appropriate management of security tokens.
MUFG states that by combining security token and smart contract technology, as well as collaborating with external programmable money, which is expected to be adopted in the future, the blockchain service will enable efficient financial transactions with the goal of making it possible to do fundraising and management on one platform, managing a variety of financial products (bonds, securitized products, etc.) anytime (24 hours a day, 365 days a year), anywhere (accessible without an exclusive terminal), and with anyone (including individual retail investors and overseas investors).
The ST Research Consortium is expected to share knowledge and conduct research from the perspectives of funding/investment, arrangement/intermediation, and technical cooperation/settlement studies, with the aim of rapidly introducing the blockchain-based service.
The Consortium Steering Committee is managed by the Trust Bank, which will provide the Service, in cooperation with Mitsubishi UFJ Morgan Stanley Securities and MUFG Bank.
MUMSS and MUFG Bank provide essential knowledge for the development of the Service by participating in the network as an intermediary focusing on corporations, and by considering future product composition utilizing the new service.
The Consortium also plans to construct a structure that protects investors’ rights by combining blockchain infrastructure with a trust function to minimize counterparty risk, which is currently an issue for fundraising through tokenization.
MUFG explains that each time rights are transferred the information will be automatically updated on the blockchain, with the rights legally claimable. Information about each security will be programmed at the time of issuance and fund transfers associated with interest payments and redemption will be implemented automatically.
Through the exchange of tokens on different blockchains without third party mediation, the service aims to settle funds automatically and simultaneously upon the transfer of rights to securities. The
MUFG said that while developing the service a verification process for bond usage cases were performed between July and October 2019.