The development of blockchain technology has the potential to redefine the operations and economics of the financial services industry.
Despite significant technological gains in capital markets over the past 20 years, middle- and back-office functions often remain antiquated, slow and inefficient thanks to overly complex processes involving many counterparties, manual tasks and third-party service providers. Assets that trade electronically in the blink of an eye can still take days to settle. Blockchain-enabled distributed ledgers could change all that.
Interest in and funding for this type of financial technology is growing exponentially. An estimated $75 million was invested in blockchain efforts specific to capital markets in 2015, up from $30 million in 2014. By 2019, that figure is expected to reach $400 million. Individual organizations, industry consortiums and even major central banks are all jumping on board to see what blockchains can do. Are you ready to jump too?
Capital Markets | Investment Banking: Blockchain-Enabled Distributed Ledgers: Are Investment Banks Ready?
In the context of capital markets, potential benefits include:
Faster settlement times that are user-optimized
Lower collateral requirements and counterparty risk
Improved contractual term performance
Greater transparency for regulatory reporting
Better capital optimization
However, like any new technology, blockchains have their challenges:
Privacy: Balancing the confidentiality and traceability of trading activity
Security: Protecting against reorganization by one or more participants
Scalability and latency: Finding solutions that can handle the required volume
Implementation: Establishing standard tools or administration interfaces
Governance: Redefining the “new normal” threat matrix for shared ledgers among large banks
If 2015 was the year of blockchain exploration and investment, then 2016 will be the year of early adoption. Integrating distributed ledger and blockchain solutions into legacy bank infrastructure will not be simple, but capital market firms are uniquely suited to the challenge. Given the industry’s history of early adoption, firms are skilled and experienced at creating proof-of-concept (PoC) teams, defining use cases and judging the results. By 2025, Accenture anticipates widespread blockchain adoption across capital markets.