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Treasury & Capital Markets
Beyond the hype: collaboration key to unlocking blockchain potential
Blockchain could save billions of dollars for banks and alter the way the industry works, but participants must collaborate and invest in the technology to unlock its potential.
The Asset 4 Feb 2016
 
Blockchain could save billions of dollars for banks and alter the way the industry works, but participants must collaborate and invest in the technology to unlock its potential.
 
In a new report, post-trade services provider Euroclear and management consulting firm Oliver Wyman believe there should be a continuous industry-wide engagement to shape the development of the blockchain technology. 
 
Major established players in the market must work with innovators to develop standards, while also preserving the existing strengths of the ecosystem, and navigating the complex worlds of regulation and legal oversight, says the report.
 
Angus Scott, head of product strategy and innovation, Euroclear said: “In order to work together to shape a new future, the industry needs to take a collective view on the potential of the technology, which was the intention of this study. The market must embrace this potential, show patience with this development and invest in various innovative solutions to bring it to reality."
 
The paper calculates that IT and operations expenditure in capital markets is currently close to US$100-150 billion per year among banks. On top of that, post-trade and securities servicing fees are in the region of US$100 billion. Significant capital and liquidity costs are also incurred as a result of current delays and inefficiencies within market operations.
 
The paper outlined seven steps for the industry to take advantage of the blockchain technology:
 
·         Work on concrete proofs of concept
·         Challenge service providers to innovate
·         Understand current quantification of operational costs, isolating savings from blockchain
·         Continue industry-wide engagement
·         Participate in prototypes and embrace “learn by doing”
·         Bring the business mind to technological start-ups
·         Prepare the narrative for regulators and supervisory bodies
  
Blockchain (or distributed ledgers) offers a new approach to data management and sharing that is being proposed as a solution to many of the inefficiencies afflicting the industry, the paper notes. 
 
Ben Shepherd, partner in Oliver Wyman’s strategic IT and service operations practice, said: “The prize on offer is a world where all capital market participants work from common datasets, in near real time and where supporting operations are either streamlined or made redundant.”
 
Direct savings from blockchain would need to come from the decommissioning of redundant or duplicative systems, reduced operational overheads and cost-sharing across institutions. Reducing firms’ financial resource requirements (e.g. by reduced counterparty credit risk) may also help to drive down economic costs of business.
 
 
 

    

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