In the News

There are strict onboarding requirements concerning customer data on identity proof, residency, marital status, source of wealth, occupation, and business interests.

It is tedious to collect, retrieve and share the customer data to comply with various regulations. Apart from this, automated clearing houses and automated customer account transfer systems take multiple days involving manual intervention and multiple databases.

Blockchain can tackle the onboarding challenges by storing customer profile data in a secure manner and sharing it only with the trusted parties.

Any party to the transaction can audit the customer (KYC) data on blockchain. The technology also simplifies the process of compliance with anti-money laundering as it enables an audit trail for all the transactions related to a customer profile.

Easy availability of third party investment models in separately managed accounts have resulted in operational challenges for asset managers.

An asset manager using multiple platforms might find it difficult to monitor, update and distribute portfolio models. Distributed ledger (blockchain) will allow portfolio managers to communicate the portfolio changes in real-time to the clients subscribed to the model.

It will allow smooth setting and application of account level rules to facilitate automation. Real time performance and risk data will also make fund managers smarter on the investment decisions.

Increasing number of asset managers have looked to outsourcing part of front office functions like trading in the face of tightening margins and fees.

Though it helps lower the fixed operating costs, there is a risk of losing control over this key function. Intermediaries involved in the settlement of trades also add to the cost of doing business.

Blockchain technology’s potential can be explored in trade execution and settlement. Distributed ledger will definitely reduce need of intermediaries in trade execution, transfer of ownership and the settlement.

Asset managers can retrieve control and save costs following implementation of blockchain.

Investor communication, management reporting and compliance with ever increasing regulatory requirements consume inordinate amount of time for any asset management firm.

Blockchain is the ideal solution to keep up with the routine reporting requirements internally and externally in a secure, transparent, real time and cost effective manner. Asset management players can seek inspiration from NASDAQ which used distributed ledger to record and visually represent private securities transactions, closely linked to the reporting value chain.

In the short run, there are a few roadblocks in the way of blockchain adoption. The foremost myth surrounding blockchain is its association with speculative bitcoin, disregarding the fact that bitcoin is just one cryptocurrency application based on the foundational blockchain technology.

Additionally, there are doubts regarding its scalability as successful use cases are yet to test large volumes of data.

Another big challenge is the lack of clarity on the time to profit on the invested capital. There are also chances of conflict between technology and business teams on optimal use of this technology.

Legacy systems and processes might prove another hindrance in the smooth roll-out of blockchain based solutions. The product landscape is also complex and how blockchain will tackle post roll-out changes in products, is a moot point.

Lastly, the regulatory and custodial requirements are still unclear when assets are managed through smart contracts.

Industry players must understand that blockchain is in a nascent stage, albeit with endless possibilities.

Initial value will be in reducing cost of operations before it graduates to disrupting existing business models. In the interim, asset management industry will do well to explore use cases where intermediaries like transfer agents, brokers and exchanges can be relieved of some operations to enable cost savings.

Some functions across the value chain should also be identified based on immediate business benefits and successful use cases, suitable for application of blockchain technology.

The asset management industry will benefit immensely from core strengths of distributed ledger viz improved security enabled by impenetrable cryptography, cost and operational efficiency resulting from smart contracts and near real-time transactions; besides the streamlined regulatory compliance.

Blockchain will make businesses better exactly the way internet empowered masses by democratizing access to information anywhere anytime without the involvement of intermediaries.