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Categorized | Financial

Asset managers quick to adopt blockchain

Posted on September 21, 2016

Blockchain PICN©iStock

Blockchain — the transaction database technology underpinning the bitcoin currency — is being used by hundreds of investment companies and wealth managers around the world, as more businesses see its potential to transform financial services.

Research by Roubini ThoughtLab has found that 225 of the 500 asset managers it surveyed had implemented the technology, which allows transactions to be verified electronically over a network of computers, with no central ledger. Overall, two-thirds of the companies questioned said they expected to be using blockchain within five years.

    For financial services groups, blockchain is attractive as it means there is no intermediary to pay for certain transactions — offering scope to cut costs. A Santander report published in 2015 suggested that global banks could save up to $20bn a year by 2022 by implementing the nascent technology.

    However, the widespread introduction of blockchain could also drive many ill-prepared asset managers out of business, according to the Wealth and Asset Management 2021 report by Roubini ThoughtLab — a consultancy co-founded by author and economist Nouriel Roubini.

    “Technology is a tsunami that will radically change the face of financial services,” Prof Roubini said. “The losers will be those companies that are not nimble enough to adopt the new technology — and a lot of them may disappear.”

    Workers in the sector may also suffer, said Prof Roubini, who when working as a US Treasury official was best known for predicting the US housing crisis of 2007-08.

    “As you adopt technologies that are capital intensive and offer labour savings, a lot of the workers not in highly skilled positions in financial services will be replaced by software, robots and machines,” he said.

    The World Economic Forum estimates that by 2027, assets equivalent to 10 per cent of global GDP could be held on a blockchain.

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    “We’re moving from the ‘internet of information’ to an ‘internet of value’ where a lot of what financial services firms normally do — namely acting as a trusted intermediary between parties who may not know each other — can be significantly automated and improved,” said Alex Tapscott, co-author of the book Blockchain Revolution, in the Roubini ThoughtLab report. “That has a direct impact on the world of investment services.”

    But the costs of implementing new technologies — including social media, analytics and mobile apps, as well as blockchain — could prove prohibitively high for some smaller firms. UBS, for example, is investing SFr1bn in new technologies across the spectrum.

    If blockchain can cut transaction costs, though, it might ultimately give lower-income investors greater — and cheaper — access to markets.

    “Many more people are interested in both the macro and local markets than ever before,” said Yoni Assia, chief executive of eToro, a social trading site based in Israel.

    “But very few people actually act on these ideas. Now, with a very low barrier to entry, it means more people have the chance to enter the capital markets world of trading and investing.”