blockchain trends and applications
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Blockchain Trends and Applications
March 8, 2017
SPONSORED BY:
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MODERATOR:
PANELISTS: Angus Champion de CrespignyFinancial Services Blockchain and Distributed Infrastructure Strategy Leader, Ernst & Young
Justin ChapmanSenior Vice President, Global Head of Market Advocacy & Innovation Research, Northern Trust
Serge WeylandHead of Financial Institutions, Banque Internationale à Luxembourg, Co-Chair of ALFI Fintech/Digital Forum
Chuck GallantManaging Director, BNY Mellon
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What is Blockchain?How Will It Impact Financial Services?
Angus Champion de CrespignyFinancial Services Blockchain and Distributed Infrastructure Strategy Leader, Ernst & Young
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Abstract. Blockchain is a decentralized and distributed ledger technology that can enhance data security, transparency, and integrity. Originally used to record historical transactions of Bitcoin, the technology was further developed to relate to existing technologies. A decentralized structure enables blockchain to operate with high efficiency, low cost, and a resistance to outages of a centralized database.
Blockchain
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Structural Models
• Traditional central body controls transactions and records
• Other parties maintain their own copies
Centralized
• All parties can hold the same record of every transaction
Distributed Ledger
• Intermediaries maintain local records of transactions
• Other parties maintain their own copies
De-centralized
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Blockchain and Asset Management
A Disruptive Technology Solving Business Challenges
Manages transactions (the “blocks”)
Maintains records (the “chain” of computer code)
Distributed ledgerRecord keepingOwnership verificationDigital identitySettlement and clearingPotential
Process Disintermediation
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Proof of Concept: Applicability in Asset Management
Serge WeylandHead of Financial Institutions, Banque Internationale à Luxembourg, Co-Chair of ALFI Fintech/Digital Forum
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KYC/AML Utilities
Industry Use Cases
Shareholder Recordkeeping
Distribution of Funds
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Fundchain 2016
Blockchain Research Initiative for the Fund Industry
10 participants from Fund IndustryUniversity of Luxembourg1 startup
4 Blockchain trainings7 workshops 1 two-days hackathon
2
1 Blockchain Proof of Concept “SmartTA”running on a 10-node privateEthereum Blockchain
1 White Paper covering business and technical challenges and perspectives1 regulation studyPresentation to the regulator - CSSF
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Fundchain 2016
Proof of Concept: SmartTA
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Fundchain 2016
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The distribution value chain counts many intermediaries between final investors and asset managers that increase the cost of distribution
Investor Asset ManagerTransfer AgentDistributor Fund platform Custodians
• Perform AML/KYC
• Advise investors on products
• Sell products
• Transmit fund documentation
• Advise on fund selection
• Order routing, clearing and settlement
• Deliver market Intelligence
• Compute and collect inducements
• Collect cash from investors and make payments
• Perform reconciliations with TA orders
• Safe-keep fund assets
• Perform oversight on fund flows
• Perform AML/KYD
• Collect orders• Update the
register of shareholders
• Perform corporate actions
The current model will significantly evolve in the next years with the implementation of Mifid II and the need for Asset Managers to reduce operational costs
Clearing & Settlement
House
• Wire cash from investors
FundsDLT
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MIFID II is disrupting the whole fund distribution business model
Distributors• Might close the open architecture
model and only offer in-house products to continue perceiving inducements
• Create FoFs to replace inducements by management fees
• IFAs will charge an upfront fee to end investors
Retail investors• Might end up losing their IFAs as they won't
be profitable anymore• Become self-directed investor as they do not
wish to pay an upfront fee• Otherwise limit its portfolio to one
brand/asset manager• Expected to use more D2C platforms
Fund managers• Challenging to distribute funds for
independent fund houses as distributors are likely to favor in-house products
• Start directly targeting end investors• Develop tools to help distributors
selling their products
MIFID II
Distribution platforms• Platforms will lose their principal
source of revenue: Inducements• No clear new business case
FundsDLT
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FundsDLT
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FundsDLT
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Drivers and Hurdles for Blockchain Implementation
Justin ChapmanSenior Vice President, Global Head of Market Advocacy & Innovation Research, Northern Trust
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Cost reduction
Value-added capabilities
Risk reduction
New revenue opportunities
Prevention of lost business opportunities to smaller disruptors
Drivers
MEASURABLE ROI
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Industry standards Multiple entities and ledger technologies
Regulatory and compliance challenges Policy and governance
Technology operating at scale Technical viability to be proven
Implementation Costs Integration with existing systems/operations New vendors
Hurdles
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What Can My Firm Do to be Prepared for Blockchain?
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Questions