Calastone, the provider of a transaction network used by asset managers globally, has announced that its services will move to a blockchain based infrastructure by 2019.
That means that the more than 1,300 financial services businesses using its services currently, and that send some seven million transactions messages monthly, will be shifted onto a system that relies on so-called distributed ledger technology – as already used to underpin cryptocurrencies such as bitcoin, but which is increasingly being eyed to underpin other areas of financial services. Blockchain works by ensuring transactions are recorded and validated by nodes of peer-to-peer computers rather than a centralised database; each time a transaction is validated, this information is added to a chain of ‘blocks’ of data, hence the blockchain.
Calastone initiated a proof of concept of its blockchain ‘distributed market infrastructure’ in mid-2017, through which it tested and verified the feasibility of using blockchain to support trading and settlement of mutual funds. Following this successful test, it now says that it will use the technology to underpin the change to its technology infrastructure in 2019.
A key driver is the processing efficiencies that a blockchain based infrastructure offers against current method, because of the ongoing requirement to replicate and reconcile records. This has created overheads which can be better controlled by using blockchain. Calastone said its proof of concept also highlighted that the new system is easily scalable to handle greater transactions volumes and fund flows in future.
Providers of transaction and other networks face growing costs driven by regulation such as Mifid II and GDPR – General Data Protection Regulation – in the EU, which will only increase the pressure to identify efficiencies, Calastone CEO Julien Hammerson said.
Deputy CEO Ken Tregidgo added that although Calastone already connected fund managers, transfer agents and distributors, using blockchain would faciliate an even more streamlined process going forward.
There have been a number of products launched in the recent past, primarily targeting investments in bitcoin or other cryptocurrencies, which InvestmentEurope has reported on (http://www.investmenteurope.net/?x=0&y=0&s=blockchain ).
Elsewhere, there are ongoing attempts to develop ways to use blockchain technology to underpin trading on exchanges, which could similarly lower costs per trade.