A new frontier for the fund​​​​​ distribution model.

Distributed ledger technology threatens to disrupt the business model of many financial sector players, including much of the fund industry. Transfer agents, custody, fund accounting, distribution and more, are likely to suffer, as are clearing and settlement houses, payment system providers, and stock exchanges. In short, anything in the financial sector that can be summed up as data duplication and reconciliation is vulnerable for disruption.

The blockchain technology underpinning Bitcoin is proving to be a perfectly secure and tamperproof way to share any type of data. As this technology and its use has matured, so Bitcoin and other crypto currencies are gaining a reputation for reliability. Distributed ledgers use the block chain to track ownership of any financial, physical, or electronic asset: bonds, equity, currencies, commodities, fund shares…

Anyone with permission can update and access data on the distributed ledger, with all users able to see who has changed what, when and by how much. Counterparties could keep these ledgers up-to-date in real time, without the need for an expensive third party. This would eliminate the need for many of the firms that currently thrive in Luxembourg and elsewhere maintaining and reconciling lists of more or less the same data. Blockchain means software developers too will have to rethink their methods.

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ALFI Spring Magazine 2016

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