The Blockchain at the service of Asset Managers

Cryptocurrency background

The Blockchain, this technology that will allow us to bypass intermediaries in different sectors: real estate, banking, insurance, health… and will give us the power to benefit from cheaper products and services with greater reliability and transparency. Some consider it as the opportunity of the next decade, others as a threat to their business, but some groups that felt threatened by this technology took the initiative to invest in it, as is the case with more than 50 financial institutions: Société Générale, BNP Paribas, Barclays… to develop a common and private Blockchain.

According to Ludwig Siegele this revolutionary technology will make it possible to develop many business models, transform the economy and society but what it has more innovative is that it promises the decentralization of trust and even more the automation of transactions by removing trusted third parties.

Defining the Blockchain in a few words is not easy, it depends on everyone’s experiences and achievements. But I find Laurent LELOUP’s definition clearer: a Blockchain is a distributed transactional database, comparable to a decentralized and shared general ledger, which stores and transfers value or data via the Internet, in a transparent, secure and autonomous way because there is no central control body. This register is active, chronological, distributed, verifiable and protected against falsification by a system of distributed trust (consensus) among members or participants (nodes). Each member of the network has an up-to-date copy of the general ledger (in near real time) and the content is always in line with all participants.

For David Daoud from Maltem Consulting

The Bitcoin Blockchain was the first to be defined as a string of blocks in which each transaction is encrypted to become a block. The following transaction is in turn encrypted on the basis of the previous block and so on, hence the notion of Chain chain or block Chain become Blockchain (in a single word).

The Blockchain is the flagship innovation that was behind the emergence of Bitcoin to the general public this digital currency or called crypto-currency that appeared during the 2008 financial crisis more specifically on October 31, 2008 Satoshi Nakamoto announces the birth of the first Bitcoin.

The main properties of Bitcoin
  • Bitcoin is without central organ
  • Peer to Peer exchanges
  • Traceability of transactions on a register
  • Users keep this register and check transactions ;
  • Bitcoin is divisible, non-perishable, identifiable, storable and difficult to counterfeit.

But the fields of exploitation are immense and infinite for example: banking, insurance, transport, energy, health… In the rest of this article we will see the opportunities that this technology represents for asset managers.

In the current economic context, low rates, low inflation, increasingly rigid regulations, as well as aggressive competition between the various players on the financial markets. Investment banks and asset management companies are forced to adapt to the current environment, to adapt their offers to customers increasingly seeking high returns. In order to maintain their margins, these financial institutions are forced to take the digital train towards a rationalization of certain functions.

Blockchain’s technology is positioned as the innovation that will turn the asset management industry upside down, according to Accenture, the Blockchain’s operation could reduce back middle office costs by 30%, resulting in savings of USD 8-12 billion per year by 2025 and lowering costs by 70% in financial reporting and 50% in compliance functions.

Asset management is a rapidly changing sector, a highly regulated sector, characterized by a large number of transactions and interactions with different stakeholders and intermediaries, the Blockchain intends to make these interactions more efficient and low-cost.

A study of PWC PricewaterhouseCoopers shows the characteristics of this technology in this sector:

  • A disintermediation of asset transfer
  • Transaction transparency and direct link creation
  • Data reliability and quality
  • Reduce costs and speed of settlement and delivery
  • A new form of asset valuation due to fraud risk reduction

Financial players are aware of the challenges and potential that this technology represents in transforming some of their businesses, such as BNP Paribas and AXA IM, which announced on 19 April 2017 the creation of a distribution platform based on Blockchain technology and “digital contracts” smart contracts for fund managers and institutional investors in order to optimise fund distribution processes and information flows between the various players and meet the regulator’s transparency requirements (MIFID II Directive).

The Blockchain is the technology that makes it possible to disintermediate all trusted third parties, but the major concern of the asset management industry is to ensure the security and reliability of this technology in order to have better protection of transactions and customer data.


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