In relation to the blockchain strategies of banking, we at Maddox Burhall are releasing in May the opportunity report for funds.
Extending far beyond bitcoin and cryptocurrencies, Blockchain technology is bringing disintermediation to merely all industries. A survey from the World Economic Forum highlights that financial services will be transformed by this technology with expectations of at least 10% of the global GDP being stored on Blockchain platforms by 2025. The fund sector that is seeking levers for processing optimization and which relies a lot on financial service intermediaries such as transfer agents, fund registries, and fund administrations will be particularly impacted. Considering that the fund sector represents more than 50% of its economy, the Blockchain has the power of an earthquake that would shake to the ground the whole Luxembourg place.
By combining smart contracts and recording of transactions in its ledger, a Blockchain is able to replace any kind of intermediary that maintain a registry or executes transactions between parties. Therefore, providing complexity of the more advanced flows is supported, a Blockchain would, in theory, takes over the transfer agents and parts of the activities of the fund administration. For example, the fund registry could be implemented in the ledger of a Blockchain, transactions recorded in it, and smart contracts configured to call for KYC/AML procedures upon a subscription. Because it disintermediates the fund value chain, some functions and activities won’t be needed anymore, reducing a lot the time to execute the transfers of value. While currently, the time to exchange fund share versus payment is more than 2 days, in the future, it could occur almost instantaneously provided the investor has enough money on his or her account. In a full implementation of the technology, fund promoters could simply directly distribute fund shares without any intermediary. Even the assets side could be taken over by the Blockchain, supplanting custodian banks and fund accounting firms.
The opportunity report we are releasing in May at Maddox Burhall is for anyone to see a possibility of transition into these protocols.
With €3.5 trillion in 2015, Luxembourg is the first European financial center and second-largest player in the world in terms of local fund assets. Luxembourg is also the first country in the world in terms of cross-border fund distribution. Distributing funds, especially cross-border, is a lengthy and costly process. The underlying activities of this process are performed through intermediaries and trusted counter parties which leads to an addition of several costs. Deloitte estimated the processing costs of fund distribution in Luxembourg in 2014 at €1.2 billion. Furthermore, 23 percent of the fund order process is still being handled manually, mainly through fax orders, which has a significant impact on distribution costs. By automating processes and removing the need for intermediaries to distribute funds and process transactions, Blockchain technology is an opportunity for investment funds to improve distribution process speed and efficiency as well as reduce costs. On the other hand, it might also be a threat for the Luxembourg economy as a whole, as the fund industry employs 14,000 people, many of them in areas that might be completely disrupted and partly or largely automated by the Blockchain. / Maddox Burhall – Development of Blockchain-based funds.