2016 saw notable advances towards blockchain adoption across the capital markets industry. Now is the time to start thinking about the impact distributed ledger technology (DLT) could have on business processes and how investment banks can prepare for a more efficient, secure, and cost-effective operating model of the future.
Across the capital markets industry, market leaders made significant advances towards blockchain implementation in 2016. For example, NASDAQ introduced Linq, a solution for the issuance, tracking and trading of private equity assets. The Australian Securities Exchange completed a prototype to replace its current clearing and settlement system with blockchain and is on track to make a final implementation decision later this year. And the Depository Trust and Clearing Corporation, after successful blockchain trials trading swaps with four banks, is starting to test other asset classes.
The potential to reduce costs
A recent study by Accenture and McLagan, a business unit of Aon plc, revealed that eight of the world’s 10 largest investment banks could save roughly 30% or more in middle and back office operations costs with a full-scale blockchain adoption. Blockchain also holds the promise to help unlock previously “trapped” capital by shortening settlement times, and optimizing delivery and payments.
Getting to a broad blockchain adoption requires thoughtful strategic investments and planning. While blockchain has the potential to unlock value and efficiency across operations, its impact has a much broader reach. Investment banks looking to make the most of DLT need to identify the areas that will benefit the most from adoption, and have a bold vision and practical plan in place for increased technology demand, training and redeployment of human capital and a shifting regulatory environment.
A new foundation
As industry leaders lay out their plans to leverage blockchain, investment banks will see a shift in the business processes and the current operating model. Here are some practical and essential aspects to consider on an individual company basis:
- A clear plan of action: During the transition period, legacy infrastructure and distributed ledger models will co-exist. Find the biggest cost/benefit ratios, and consider retiring redundant systems earlier.
- Human capital impacts: Blockchain will require new expertise and skill sets. Be prepared to re-tool existing talent, and develop new hiring mechanisms.
- Middle and back offices: There will be significant changes to data centers, as well as profound reorganization of middle- and back-office functions. Identify the highest priority processes, and explore the most logical places for readiness.
- Stay abreast of regulation: The regulatory response to blockchain is uncertain so far. Banks should ensure their blockchain-enabled solutions comply with all current regulatory mandates, even if they seem redundant.
Blockchain has the potential to deliver significant benefits to investment banking. As industry leaders illustrate what’s possible, it’s important to put the right pieces in place for your blockchain initiatives.
Is your organization ready to pick up the pace of adoption with blockchain? Contact me, David Treat, at firstname.lastname@example.org to get started.
In the meantime, check out the full report: Challenge 10: Using Distributed Ledgers: Blockchain Moves to Early Adoption http://ir.nasdaq.com/releasedetail.cfm?releaseid=948326  http://www.zdnet.com/article/asx-completes-blockchain-trading-platform-prototype/  http://qz.com/656959/the-dtcc-and-4-top-banks-usedblockchain-tech-to-trade-credit-swaps/