Calastone, a global funds network based in London, has announced that it will be switching its entire system for fund trade clearing services completely to blockchain in 2019, Reuters reports.
The move to blockchain is expected to transform the current services by making use of a shared ledger to automate millions of messages that are being sent between counterparties on a monthly basis, with a total worth of about $217 billion. Calastone is responsible for processing mutual fund trades for well hundreds of financial companies, including the likes of Invesco, Schroders, and J.P. Morgan Asset Management.
According to the report, three messages are required by the current system to be sent digitally between enterprises anytime they buy into a fund. The first message is to place an order, the second is to act as a receipt of an offer, and the third message is a confirmation of the price. The move to blockchain is expected to speed up the process and slash the communication costs for Calastone.
Andrew Tomlinson, Chief Marketing Officer at Calastone, told Reuters in the report:
“The more you can automate, the more you de-risk, you more you streamline, and the more you speed up.”
Citing data from Deloitte, Calastone believes that the adoption of the blockchain technology could save the global fund industry about $4.3 billion on an annual basis by providing optimization of various settlement and trading processes. It is, however, noteworthy that his figure doesn’t account for the United States market, where the Depository Trust & Clearing Corporation have already developed a centralized system for trade settlement.
The Funds market has been battling with increasing costs, which are in part incurred by the sterner regulatory measures that were imposed after the 2008 global financial crisis.
Although blockchain technology emerged as a means of helping to monitor the ownership of Bitcoin and other crypto assets, mainstream financial corporations have been able to explore the potential of the technology to reduce costs and bring about simplified financial processes.
In a traditional financial transaction, companies- ranging from asset managers to transfer agents- will be required to input the same kind of information. Over time, this system has proven to be costly, time-demanding, and very prone to errors. Most of these erroneous and strenuous practices can be reduced- or at the very least ameliorated- through the adoption of blockchain technology.
Calastone also said it was still too soon to know whether the move to blockchain would bring a change to its pricing structure, particularly as the adoption of the blockchain technology would bring about changes to how transactions are conducted.
In a separate interview, Calastone CEO Julien Hammerson, speaking on why the move to the distributed ledger technology was necessary said that currently, funds are
“hampered by continually rising costs and the threat of competition, ultimately rendering the current system economically and operationally unsustainable.”
Other fund managers that have been busy implementing the blockchain into their processes include BNP Paribas Asset Management and Ostrum Asset Management—both funds ran an end-to-end blockchain transaction trial earlier in the year.
Standard Life Aberdeen and Columbia Threadneedle, also announced the formation of a retail fund platform for impact funds leveraging the nascent technology. This is despite the ongoing debates as to whether or not blockchain will pose risks to security and privacy. In an earlier report by “Big Four” audit firm KPMG, titled ‘Realizing Blockchain’s Potential,’ noted some of the challenges being faced by companies on how best to integrate the technology into their processes.
“Rapid growth of the technology and the growing menu of blockchain platforms coupled with its differences from traditional technology has made it challenging for companies to understand how best to apply, employ and harness the value of blockchain while managing associated risks — risks they might not fully be aware of,” the report reads.