BLOCKCHAIN: WILL ASSET MANAGEMENT EVENTUALLY BECOME COMPLETELY DECENTRALISED?
There is great excitement about the arrival of blockchain among those who consider the decentralisation of financial asset management as a remedy for the slowdown in its growth. And yet, the majority of asset managers seem to have finally overcome the hype generated by this promising technology and are now asking themselves the right questions: what are the current limits of blockchain? What are its regulatory requirements? And what are blockchain’s priority development areas if we look at it from the end customer’s point of view?
FINANCIAL PLAYERS ARE STILL ESSENTIAL
Blockchain should make current financial centres function more smoothly and reduce their costs, even if a complete substitution is still impossible considering the regulatory requirements concerning the security of flows.
However, asset management remains an important field of application for blockchain as long as this activity continues to be strongly intermediated. But disintermediation is on its way, and many players will have to change.
More generally, safeguards currently play an active role in combating money laundering and the funding of terrorism, as well as preventing the excesses of shadow banking. The first to spring to mind are depositaries and custodians, and account-keeping institutions: they are the keystone to controlling the end customer (‘Know your client’), steering sensitive flows and ensuring the security of deposits.
ASSET MANAGERS NEED A CLEAR LEGAL FRAMEWORK FAST
The disintermediation promised by blockchain is actually being held up by the overall unpreparedness of the legal framework. Public authorities are currently busy with consultations and reflection prior to the introduction of blockchain in the Monetary and Financial Code.
For instance, the public consultation led by the French Ministry of Economy and Finance, prior to its draft ordinance, only ended on 6 October last: the legal entities authorised to use shared digital ledgers and the security requirements particular to their use still need to be determined, both in France and at an international level.
The same is true regarding the definition of responsibilities in case of technical or human malfunctions.
WHAT ARE THE PRIORITIES FOR BLOCKCHAIN?
The stakeholders in asset management will need time to develop effective uses for this technology, in an uncertain regulatory and macroeconomic context. We therefore believe that initial uses must focus on the fastest benefits that blockchain can offer end customers. This ‘test & learn’ logic will allow us to exploit, with greater maturity, a potential to transform asset management, which is still underestimated, or simply ‘imagined’ for the moment.
It will bring transparency and security at a minimum cost to these environments, which will then be able to accelerate their development.
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