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Calastone, a global network of funds based in London, has announced that in 2019 it will completely change the entire system for clearing the trade in funds up to the blockchain, Reuters reports.
Switching to the blockchain is expected to transform current services using a shared ledger to automate millions of messages that are sent between counterparties on a monthly basis, for a total value of approximately $ 217 billion. Calastone is responsible for the processing of mutual fund exchanges for hundreds of finance companies, including Invesco, Schroders and J.P. Morgan Asset Management.
Faster processes
According to the report, the current system has to send three digital messages between businesses every time they buy a fund. The first message is to place an order, the second is to act as an acknowledgment of an offer and the third message is a confirmation of the price. The transition to the blockchain is expected to speed up the process and reduce communication costs for Calastone.
Andrew Tomlinson, Calastone's Chief Marketing Officer, told Reuters in his report:
"The more you can automate, the more you risk, the more you simplify and the more you increase the speed."
Citing data from Deloitte, Calastone believes that the adoption of blockchain technology could save the global fund industry about $ 4.3 billion annually, providing the optimization of various settlement and negotiation processes. It is however noteworthy that its figure does not represent the US market, where the Depository Trust & Clearing Corporation has already developed a centralized system for trade regulation.
The fund market has struggled with rising costs, which are partly supported by the stringent regulatory measures imposed after the 2008 global financial crisis.
Blockchain exploration
Although blockchain technology has emerged as a means to help monitor the ownership of Bitcoin and other cryptographic assets, traditional finance companies have been able to explore the potential of technology to reduce costs and lead to simplified financial processes.
In a traditional financial transaction, companies, from asset managers to transfer agents, will need to enter the same type of information. Over time, this system has proven to be expensive, time-consuming and very error prone. Most of these erratic and laborious practices can be reduced, or at least improved, through the adoption of blockchain technology.
Calastone also said that it is still too early to know if the switch to Blockchain would bring a change to its price structure, particularly because the adoption of blockchain technology would bring changes to the way transactions are conducted.
In a separate interview, Calastone CEO Julien Hammerson, talking about why the switch to distributed ledger technology was necessary, said that at the time, the funds are
"Obstacles to ever-increasing costs and the threat of competition, ultimately making the current system economically and operationally unsustainable".
Other fund managers who have been involved in implementing blockchain in their processes include BNP Paribas Asset Management and Ostrum Asset Management: both funds carried out an end-to-end blockchain transaction at the start of the year.
Standard Life Aberdeen and Columbia Threadneedle, have also announced the establishment of a platform of retail funds for impact funds that exploit nascent technology. This despite the ongoing debates on the fact that the blockchain may pose risks to security and privacy. In a previous report by the "Big Four" KPMG audit company, entitled "Realizing the potential of Blockchain", some of the challenges that companies have to face in order to find the best way to integrate technology into their processes have been highlighted.
"The rapid growth of technology and the growing menu of blockchain platforms along with its differences compared to traditional technology has made it difficult for companies to understand how to apply, use and exploit the value of the blockchain while managing the associated risks – risks that may not be fully be aware of ", reads the report.
