On May 20 this year financial technology firm, Calastone, hit a milestone after switching its 1,800 global funds management industry clients on to blockchain.
But the dream back-office ‘seamless transition’ only represents “base camp” for blockchain in the funds world, according to Campbell Brierley, Calastone chief innovation officer.
Brierley, chief architect of the Calastone Distributed Market Infrastructure (DMI) system, said the route was now open for industry participants to scale up from the blockchain base.
He said Calastone was working with a number of clients – including in Australasia – to explore next-level applications built on the DMI foundations.
For example, Brierley said the UK-headquartered tech business was developing a world-first fund blockchain plug-in service with a bank that could dramatically speed up settlement.
“We’re also in talks with several clients in Australia and NZ about what new business processes might look like [using blockchain], how they could re-engineer existing services and who else should be plugged in,” he said.
Calastone has forecast blockchain could save the global funds industry more than £3.4 billion each year by creating a ‘frictionless’ trading environment.
But it may take some time for those savings to flow through to the end investor as the various players in the funds value chain adapt to the blockchain world.
Brierley, in Australia last week, said it was “early days” for the new technology with the big cost reductions likely to kick in only when the majority of the funds industry is trading in almost real-time on blockchain – also known as distributed ledger technology (DLT).
Nonetheless, he said the Calastone DMI had delivered some instant efficiencies for users, such as removing the need for all parties to reconcile trades.
“… DMI immediately solves several key points of friction which are fully automated and visible as all participants are connected into a common infrastructure,” Calastone said following the May blockchain launch. “It will also bring a new service, the Sub-Register, which creates a shared, real-time view and history of the registers between trading partners at any point in the distribution chain.”
Since arriving in NZ a couple of years ago, Calastone has connected 17 fund managers, six platforms or custodians and two registry systems to its network (now running on the DMI).
In total, the number of NZ funds traded using Calastone connection tech has grown 250 per cent year-on-year, albeit from a small base, with the technology assisting some $5.6 billion in transactions to date.
Across the Tasman where it established a base in 2012, the business wields an even stronger influence, boasting links with more than 220 Australian fund managers, 40-plus platforms/custodians and 14 registries: Calastone technology has helped transact about A$320 billion of fund trades.
According to a spokesperson, Calastone now connects to 97 per cent of Australian platforms and “the vast majority of fund managers”.
Calastone can claim a first-to-market with its fund blockchain solution but other providers are gearing up quickly. FNZ, for example, trumpeted the release its blockchain-based fund admin solution, ChainClear, in May – a couple of weeks ahead of the Calastone DMI transition. ChainClear would initially be available in the UK but the FNZ system – which, unlike Calastone’s, explicitly creates a legal registry – will eventually migrate to other parts of the world.
It is understood, too, that another NZ-based fund admin provider is about to roll out a DLT-based service.
Brierley isn’t phased by any blockchain proliferation, however. In fact, he said the Calastone DMI already “interfaces” with three other blockchain technologies, including the Hyperledger Fabric code that FNZ’s ChainClear rested on.
He said Calastone was also “working closely” with US-based blockchainer, Digital Asset, to achieve “interoperability”.
Digital Asset is building the blockchain technology set to replace the ASX’s aging CHESS settlement system. The ASX, which also owns a small stake in Digital Asset, plans to make its leap into blockchain in 2021.
Ultimately, the blockchain promise of creating a ‘single source of truth’ would create many different paths for the funds industry and others, Brierley said.
“We just want to distribute the truth,” he said.
