Calastone, a funds transaction network, has shifted its entire client base onto the blockchain.
The company said customers would experience no disruptions, and operations would continue uninterrupted when the switch was flipped on Monday.
The continuity is possible because Calastone “sits in the middle” between customer systems, automatically translating messages into and out of each user’s specific computer formats, Henning Swabey, Calastone’s head of continental Europe, told Delano in a phone interview prior to the announcement. Users do not have to immediately change their systems. That likewise means a number of “enhanced services” are instantly available to Calastone customers who are interested, stated Swabey.
Calastone, a platform where investment funds are traded by financial institutions, said it has 1,800 clients in 41 markets. The company claimed its “Distributed Market Infrastructure” had volumes of 9m order messages, representing a notional value of £170bn (roughly €195bn), per month.
Last year Calastone commissioned research from the consulting firm Forrester, which forecast that the funds industry could save £1.9bn (around €2.2bn) over 6 years by moving to blockchain-based infrastructure.
Swabey argued that blockchain technology delivered three initial benefits to its users. First, the need for reconciliation is “minimised or disappears” as orders are handled “on a real time basis”.
Second, financial institutions “have a clear picture of how much money I owe or am I owed,” which Swabey said, “can help your treasury team manage appropriately.” Third, the shared register means all parties have the same access to common information, leading to time savings and hassle avoidance. The firm has “a product roadmap of further enhancements” which will be introduced “over the coming months”.
Luxembourg fund industry
In Luxembourg, RBC Investor Services has been participating in the firm’s early adopter programme, according to Swabey. That scheme is more than a beta programme, he said. “Early adopters are helping us define practical applications” and have been “working on a number of different scenarios” for future services.
Other firms–such as Goldman Sachs, Henderson, M&G and Schroders–also use Calastone. Swabey estimated that “65%-70% of all Luxembourg Sicavs” are on the network.
“I think there’s a been a very strong interest” in using blockchain technologies within the investment fund sector in Luxembourg, Swabey told Delano. He reckoned that some in the industry are “not sure how it can help me”, while others think it’s “fantastic”. A third group are “not interested” using blockchain on “day one… but are already thinking 5-10 years ahead. How to become the next Amazon but in financial services”. They are asking themselves, “How can I launch a new fund entirely digitally” and “how to run an active strategy at a passive cost.”
At the same time, there are people in the industry who dismiss blockchain as a “nice buzzword”, Swabey concedes. “There is a misunderstanding of what a blockchain is [and] how it works.” Calastone is not issuing publicly available tokens like bitcoin, he stressed. Its tokens can only be accessed on its private network, which is restricted to partners and clients. In addition, sky-high energy usage and slow processing times, which plague the use of bitcoin, “does not happen in the world of a private permission network”.
Transfer agent concerns
Swabey dismissed the argument that blockchain use “means the death of the transfer agent”. He stated: “I can absolutely say that Calastone is not interested in becoming a transfer agent… Yes, blockchain allows certain functions of a TA to be shared, yes there will be an impact on certain staffing requirements.”
However, “the true value offering at a TA is as a client service agent. The TA is interacting with underlying clients [and partners] in a way the fund [company] is not.”
So, admittedly “there is concern in the industry that blockchain will get rid of the TA, but I would say that’s not the case because” transfer agents can offer services to distributors, for example, that the fund firm cannot, Swabey said. “Blockchain can help improve the customer experience.”
A spokesman for Calastone added that, at launch, it would be the world’s largest blockchain connecting platform across the entire financial services sector.
