As Wall Street digitizes financial systems, compliance poses a hurdle

Banks, asset managers, and infrastructure providers have spent years and billions of dollars proving that financial assets can be digitized and moved through programmable settlement systems. That proof now exists.

JPMorgan has done it. BlackRock has done it. Franklin Templeton has done it.

The question now stalling the next phase of capital markets modernization is different, and it is proving harder to answer.

Why financial infrastructure has become the real bottleneck

BNY Mellon's 2026 financial system modernization report identified five priorities reshaping global capital markets this year: faster securities settlement, central clearing in U.S. Treasury markets, collateral mobility, the integration of programmable financial infrastructure, and artificial intelligence.

What connects all five is a shared dependency on operational infrastructure that has not kept pace with the speed of technological change, according to BNY Mellon.

Institutional clients now demand fully integrated, end-to-end platforms with speed, certainty, and real-time transaction visibility, BNY Mellon confirmed. That standard is not being met consistently across the market.

A Bloomberg Intelligence survey of more than 100 institutional investors published in April 2026 found that 68% expect moderate improvement in deal activity this year, with digital infrastructure named as the primary focus area.

Yet scaling those strategies requires custody, compliance, and settlement capabilities that many institutions are still assembling, according to Bloomberg.

The infrastructure gap that pilots alone cannot close

Building a digital representation of a financial asset is a technology problem that the industry has largely solved.

Creating the custody framework, compliance layer, servicing infrastructure, and liquidity depth that allow institutions to hold and manage that asset across its full lifecycle is a different problem entirely, and the industry has been slower to address it.

The scale of the gap shows up in the numbers. Digitally issued assets have surpassed $32 billion as of May 2026, tripling in a year. BlackRock's BUIDL fund has grown to over $2.4 billion in assets under management.

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JPMorgan filed for a tokenized Treasury fund in May 2026, expanding its Kinexys distributed ledger platform to Ethereum, according to ECIKS. Those figures represent a fraction of global capital markets, which collectively manage hundreds of trillions of dollars.

The technology is scaling. The infrastructure to support it at full institutional size is still catching up.

That gap is increasingly being addressed through partnership rather than solo product development. On June 3, Anchorage Digital, the only federally chartered digital asset bank in the United States, confirmed a partnership with Real Finance to combine regulated custody, settlement, and treasury management with issuance infrastructure and lifecycle management tools for digitally issued financial instruments.

Both firms will support each other's institutional pipelines, with Anchorage Digital serving as the custody backbone for new instruments launched on Real Finance's platform.

Ivo Grigorov, CEO of Real Finance, said the arrangement reflects where the industry's real work remains. "Institutions need more than digital rails. They need trusted custody, compliant settlement, liquidity, and operational accountability across the full asset lifecycle" he said.

Anchorage Digital co-founder and CEO Nathan McCauley said the partnership is designed to address what has held the industry back. "Institutions need regulated, secure infrastructure that can support custody, settlement and lifecycle connectivity at scale," he explained.

Compliance, liquidity, and the fragmentation problem in global markets

The compliance dimension is particularly difficult for institutions operating across multiple regulatory jurisdictions simultaneously. Bloomberg's May 2026 global regulatory brief documented how Japan, the EU, and the U.S. are each pursuing distinct approaches to digital collateral management and settlement modernization, creating a fragmented landscape that institutions must navigate market by market, according to Bloomberg.

Ivan Patriki, fintech marketing specialist and co-founder of QuantMap, believes that liquidity sits alongside compliance as the two challenges that matter most right now.

"Tokenized assets can be created relatively easily, but creating deep, reliable markets around those assets is far more difficult. Without sufficient liquidity and operational certainty, many tokenized assets risk becoming technologically impressive but commercially limited," he said.

The commercial consequence of that limitation is direct for pension funds, insurers, and large asset managers, the capital pools that would make modernized markets truly significant.

Those institutions do not move capital into structures where they cannot reliably buy, sell, transfer, report, and manage assets within frameworks that satisfy their legal and fiduciary obligations.

Protection matters more than innovation in capital markets modernization

Porter Stowell, CEO of W3.io, believes the entire infrastructure challenge comes down to one thing. "I label all of this under one word: security. Not encryption. Protection," he said.

Traditional financial systems give institutions recourse when something goes wrong. A misdirected transfer, a fraud event, or an operational error each has an established resolution path. Digital financial infrastructure has not provided the same protection consistently, and that absence remains one of the most persistent brakes on large-scale institutional participation.

That gap is narrowing. Custody technology and settlement systems have advanced significantly over the past two years. Cold storage standards, insurance coverage, and third-party audits have turned asset safekeeping into a regulated service rather than a technical experiment.

Qualified custodians now integrate directly with trading venues and prime brokers through standardized interfaces, reducing fragmentation and settlement delays, according to BNY Mellon. The foundation is being built.

Key figures on the state of capital markets modernization in 2026:

• BNY Mellon 2026 report: Financial system modernization priorities include faster settlement, central clearing in U.S. Treasuries, collateral mobility, and programmable financial infrastructure; institutions now demand fully integrated, end-to-end platforms with real-time transaction visibility, according to BNY Mellon.
• Bloomberg Intelligence: More than two-thirds (68%) of institutional investors expect moderate improvement in deal activity in 2026; digital infrastructure named as primary focus area; scaling requires custody, compliance, and settlement capabilities still being assembled, Bloomberg reported.
• JPMorgan: Filed for a tokenized Treasury fund in May 2026, expanding its Kinexys platform to Ethereum; 63% of institutional investors now express significant interest in digitally issued assets, up from 57% in 2025, ECIKS noted.
• Anchorage-Real Finance: Anchorage Digital, the only federally chartered digital asset bank in the U.S., partnered with Real Finance to provide regulated custody, settlement, and treasury management for digitally issued financial instruments; both firms supporting each other's institutional pipelines.
• Regulatory fragmentation: Japan, the EU, and the U.S. pursuing distinct approaches to digital settlement and collateral management, creating a multi-jurisdictional compliance challenge for globally operating institutions, according to Bloomberg.

What will actually move institutional capital into modernized markets

Stowell's view is that artificial intelligence will force the issue that commercial incentives alone have not. "The technology has been ready for years. The incentive to actually move hasn't," he added.

When AI systems are negotiating and settling capital at machine speed, two-day settlement cycles and weekend closures become hard operational constraints rather than background inconveniences.

The pressure is already arriving at the edges of how major institutions operate. The DTCC has begun exploring AI-driven settlement processes as part of its broader modernization program.

Goldman Sachs and JPMorgan are running internal programs to reduce settlement times and automate compliance checks at scale, according to Bloomberg. The financial industry does not need to imagine what machine-speed finance looks like. It is beginning to build it.

Patriki's turning point is both operational and cultural. "The turning point will come when institutions no longer view tokenized assets as experimental products but as infrastructure that improves efficiency without introducing new operational risk," he added.

Consistent regulatory treatment, proven custody solutions, and live large-scale deployments by major financial institutions will do more to move that needle than any single technology announcement.

The gap between the technology that exists and the infrastructure that institutions require is the central fact of capital markets modernization in 2026. Filling it is less a technical challenge than an institutional one, requiring the kind of trust, accountability, and operational reliability that financial systems have spent decades building in traditional markets and are now being asked to rebuild, faster, in new ones.

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This story was originally published June 4, 2026 at 11:29 AM.