Blockchain Trends and Applications

March 8, 2017

SPONSORED BY:

MODERATOR:

PANELISTS:     Angus Champion de CrespignyFinancial Services Blockchain and Distributed Infrastructure Strategy Leader, Ernst & Young   

Justin ChapmanSenior Vice President, Global Head of Market Advocacy & Innovation Research, Northern Trust

Serge WeylandHead of Financial Institutions, Banque Internationale à Luxembourg, Co-Chair of ALFI Fintech/Digital Forum

Chuck GallantManaging Director, BNY Mellon

What is Blockchain?How Will It Impact Financial Services?

Angus Champion de CrespignyFinancial Services Blockchain and Distributed Infrastructure Strategy Leader, Ernst & Young

Abstract. Blockchain is a decentralized and distributed ledger technology that can enhance data security, transparency, and integrity. Originally used to record historical transactions of Bitcoin, the technology was further developed to relate to existing technologies. A decentralized structure enables blockchain to operate with high efficiency, low cost, and a resistance to outages of a centralized database.

Blockchain

Structural Models

• Traditional central body controls transactions and records

• Other parties maintain their own copies

Centralized

• All parties can hold the same record of every transaction

Distributed Ledger

• Intermediaries maintain local records of transactions

• Other parties maintain their own copies

De-centralized

Blockchain and Asset Management

A Disruptive Technology Solving Business Challenges

Manages transactions (the “blocks”)

Maintains records (the “chain” of computer code)

Distributed ledgerRecord keepingOwnership verificationDigital identitySettlement and clearingPotential

Process Disintermediation

Proof of Concept: Applicability in Asset Management

Serge WeylandHead of Financial Institutions, Banque Internationale à Luxembourg, Co-Chair of ALFI Fintech/Digital Forum

KYC/AML Utilities

Industry Use Cases

Shareholder Recordkeeping

Distribution of Funds

Fundchain 2016

Blockchain Research Initiative for the Fund Industry

10 participants from Fund IndustryUniversity of Luxembourg1 startup

4 Blockchain trainings7 workshops 1 two-days hackathon

2

1 Blockchain Proof of Concept “SmartTA”running on a 10-node privateEthereum Blockchain

1 White Paper covering business and technical challenges and perspectives1 regulation studyPresentation to the regulator - CSSF

Fundchain 2016

Proof of Concept: SmartTA

Fundchain 2016

The distribution value chain counts many intermediaries between final investors and asset managers that increase the cost of distribution

Investor Asset ManagerTransfer AgentDistributor Fund platform Custodians

• Perform AML/KYC

• Advise investors on products

• Sell products

• Transmit fund documentation

• Advise on fund selection

• Order routing, clearing and settlement

• Deliver market Intelligence

• Compute and collect inducements

• Collect cash from investors and make payments

• Perform reconciliations with TA orders

• Safe-keep fund assets

• Perform oversight on fund flows

• Perform AML/KYD

• Collect orders• Update the

register of shareholders

• Perform corporate actions

The current model will significantly evolve in the next years with the implementation of Mifid II and the need for Asset Managers to reduce operational costs

Clearing & Settlement

House

• Wire cash from investors

FundsDLT

MIFID II is disrupting the whole fund distribution business model

Distributors• Might close the open architecture

model and only offer in-house products to continue perceiving inducements

• Create FoFs to replace inducements by management fees

• IFAs will charge an upfront fee to end investors

Retail investors• Might end up losing their IFAs as they won't

be profitable anymore• Become self-directed investor as they do not

wish to pay an upfront fee• Otherwise limit its portfolio to one

brand/asset manager• Expected to use more D2C platforms

Fund managers• Challenging to distribute funds for

independent fund houses as distributors are likely to favor in-house products

• Start directly targeting end investors• Develop tools to help distributors

selling their products

MIFID II

Distribution platforms• Platforms will lose their principal

source of revenue: Inducements• No clear new business case

FundsDLT

FundsDLT

FundsDLT

Drivers and Hurdles for Blockchain Implementation

Justin ChapmanSenior Vice President, Global Head of Market Advocacy & Innovation Research, Northern Trust

Cost reduction

Value-added capabilities

Risk reduction

New revenue opportunities

Prevention of lost business opportunities to smaller disruptors

Drivers

MEASURABLE ROI

Industry standards Multiple entities and ledger technologies

Regulatory and compliance challenges Policy and governance

Technology operating at scale Technical viability to be proven

Implementation Costs Integration with existing systems/operations New vendors

Hurdles

What Can My Firm Do to be Prepared for Blockchain?

Questions