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Financial services are on the brink of a blockchain revolution



Technology is revolutionizing the world as we know it and no less so the world of financial services. Asset managers and banks alike are always looking for the next piece of technology that will give them the edge over their competitors. While the financial community may be lukewarm towards cryptocurrencies, it is becoming increasingly intrigued by the proposition of the tech architecture that underpins them – blockchain.

Over the last couple of years, financial institutions have invested significant sums of money into investigating the opportunities offered by blockchain. Back in September, JP Morgan announced 75 of the world’s largest banks are working together on a blockchain-based product to smooth cross border transfers. Then recently Spain’s BBVA and two other partner banks completed the first syndicated loan on blockchain, demonstrating transaction times can be slashed as a result.

Government and financial regulators including Britain’s Financial Conduct Authority (FCA) have also taken interest in blockchain. Rightly so, because blockchain has huge potential not only to enhance processes and systems, but cut them out completely where they are highly manual and archaic. Blockchain enables near instant settlement of trade on a range of financial securities, most notably debt and equity, significantly reducing management and administration costs previously associated with those transactions.

Faster, cheaper, secure trades are possible

Blockchain offers the possibility to significantly speed up transactions, clearing and settlements, ultimately reducing costs throughout the process, resulting in efficiency gains for all parties involved.

Many of the greatest challenges faced by asset managers today revolve around strict client onboarding requirements. Information asset managers must now collect in order to comply with AML and KYC regulations includes proof of identification, residency, sources of wealth, occupation, and business interests. There is also the requirement to comply with numerous reporting requirements, information security procedures and client profile monitoring procedures. Moreover, even in the most efficient securities markets, settlement takes several days and involves manual processes using multiple systems.

Blockchain technology has clear, demonstrated potential to speed up all of these processes significantly. Client profiles can be stored on a blockchain ledger while trusted parties are granted access to all or part of the profile based on cryptography. Most importantly, once a profile has been established, the distributed ledger automatically creates an audit trail to track any future changes on the blockchain. As a result, processes that require fact-checking, such as AML and KYC, are massively simplified and streamlined. In much the same way, securities clearing and settlement can be entirely automated, becoming almost instantaneous rather than taking days. It is not unreasonable to believe that, over time, blockchain-enabled solutions will replace all manual processes in securities markets.

Increased efficiency leads to lower administration costs for investors

Blockchain enables the automation of a number of currently laborious and highly manual functions, leading to considerable cost reduction opportunity, whilst enhancing customer service and clients’ overall experience at the same time.

The technology may also be used in future to reconcile information across older systems or enable new infrastructure for new markets and products.

Anecdotal estimates suggest that administration costs could fall by as much as 80 per cent through the use of blockchain. Moreover, research from technology firm Calastone estimates asset managers could save £1.9bn ($2.7bn) a year by replacing many manual practices surrounding buying and selling activity in favor of using blockchain. These savings can be passed directly through to investors.

First steps to adoption are already being taken

As we can see, many of the largest banks are already adopting blockchain and are able to demonstrate the value it can bring to their business and their customers. How soon before the asset management community follows?

At Globacap we have built a blockchain-enabled platform for asset managers that enables them to transact, trade, administer and settle private investments instantly, securely and at significantly lower cost.

Our platform has been tested successfully in the FCA Sandbox. These are the first steps in moving from concept to reality, and wider adoption cannot be far away. Investors and

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