Wellington-founded investment platform firm FNZ joined an increasingly-crowded blockchain party last week with a new service targeting the global funds management industry including Australasia.
According to spokesperson for the now Edinburgh-headquartered FNZ, the platform provider “very much plans to offer [the blockchain product in Australia and NZ] and discussions have begun to that effect”.
The launch of the FNZ ‘ChainClear’ system follows a commitment last December by UK-headquartered fund transaction facilitator, Calastone, to shift its entire global client base to a blockchain model by May this year.
Calastone has a number of NZ-based clients – including FNZ – that would benefit after transitioning to the blockchain system – the Distributed Market Infrastructure (DMI), the group’s acting Australasian chief, Ross Fox, said in December 2018.
Andrew Tomlinson, Calastone chief marketing officer, confirmed, the blockchain migration was on track for this month across the company’s “1,800 clients, representing fund managers, platforms, administrators and custodians present in 41 global markets”.
“This will represent the creation of the world’s largest financial community connected using distributed ledger technology,” Tomlinson said.
“By introducing our new DMI we are creating a global funds marketplace, in which buyers and sellers can connect and transact. It creates an ecosystem within which the trading, settlement and servicing of funds is friction free, eliminating the ever-growing risk and cost for fund managers and investors that are embedded within the current system.”
He said the Calastone network processes over nine million fund messages each month shifting about NZ$340 billion of investment value.
Similar to the Calastone DMI, FNZ said in a release that ChainClear would offer “a single, secure, verifiable source of ‘the truth’, universally accessible by all parties”.
But, unlike the Calastone DMI, FNZ’s ChainClear explicitly creates a centralised legal fund registry on the blockchain.
The FNZ spokesperson said “a primary benefit of this blockchain-powered solution is to create a single global registry in blockchain, securely distributed across all parties in real-time, rather than multiple parties having to maintain and reconcile separate copies of the registry”.
“We believe that only through placing the actual fund register into blockchain and making that the authoritative register, is it possible to realise the full operating cost and liquidity benefits,” the FNZ spokesperson said.
Calastone estimated its DMI could remove about NZ$6.3 billion in costs out of the global funds industry (excluding the US) each year.
FNZ said blockchain offered a “long-term potential to remove significant costs from administration”.
“In the short term we expect reductions in the costs of trading and settlement with fund managers, reconciliations and the costs of managing liquidity,” the spokesperson said.
“For all parties, there will be a settlement charge per fund settlement, where real-time, delivery versus payment, settlement takes place using ChainClear. Since this reduces the costs, both operating costs and liquidity costs, currently paid to trade, settle and reconcile there will be a net saving, that ultimately should be passed on to investors.”
After a month-long trial the March with a handful of UK-based fund managers, FNZ said it would offer the ChainClear solution across the UK market initially.
However, the FNZ spokesperson said the group would “progressively be moving market-facing operations for all of our clients worldwide to FNZ ChainClear”. In the interim, the blockchain system would function alongside “existing services and infrastructure”.
FNZ partnered with Aberdeen Standard, Equity Trustees Fund Services, Kames Capital, Legg Mason and Merian Global Investors to launch ChainClear, the release says.
Phil Goffin, FNZ head of innovation, said in the statement the firm would also offer ChainClear beyond its own client base to “ensure the benefits are shared by the whole industry”.
“We are making this solution available to all parties, including non-FNZ transfer agents, distribution platforms and trade messaging hubs (such as Calastone) who can either directly access or host a blockchain node,” the spokesperson said.
The FNZ blockchain system is built on the back of the open-source Hyperledger Fabric (“hosted” by the Linux Foundation) originally cooked up by IBM and Digital Asset.
Digital Asset is also working with the ASX to replace the Australian stock exchange’s antiquated CHESS settlement software with a blockchain service by 2021. Last week the ASX opened up its blockchain system for testing by prospective clients.
The ASX blockchain project – a stock exchange world-first – has clocked up expenses of $75 million over the last year as well as courting controversy with a formal complaint lodged with the Australian Competition and Consumer Commission (ACCC) late in April.
According to specialist publication Ledger Insights, the ACCC complaint against the ASX is probably the first of a kind “which is directly related to blockchain”.
“And likely the first of many,” the report says.
Ledger Insights says a number of parties – including Computershare, Link Administration and Boardroom – had earlier commissioned a report from Deloitte that slated the ASX over its blockchain project.
“In the ASX case, the issue is that a single entity is perceived to be extending its reach and taking over some of the functions currently provided by the share registries,” the article says. “Disintermediation is one of the objectives of blockchain, so this is likely to be a recurrent theme.”
Last month Forbes magazine also showcased the growing influence of the nascent technology with its first Blockchain 50 list. The Forbes blockchain big-guns included a number of financial services firms such as BNP Paribas, DTCC, JP Morgan and Northern Trust.
Forbes cites International Data Corp figures showing “total corporate and government spending on blockchain should hit $2.9 billion in 2019, an increase of 89% over the previous year, and reach $12.4 billion by 2022”.
“When PwC surveyed 600 execs last year, 84% said their companies are involved with blockchain,” Forbes reports.