Harnessing technology to build a brighter future for investors and the funds industry______

Ross Fox, Managing Director - Head of Australia and New Zealand

Today, we stand at the start of a fourth technological revolution that will fundamentally alter the way we live, work, and relate to one another.

The first revolution was industrial. This used water and steam power to mechanise production. The second revolution used electric power to create mass production. The third used electronics and technology to share information and automate production. Now a fourth industrial revolution is building on the third.

The, so called, digital revolution has been occurring since the middle of the last century. It is characterised by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres. The new revolution brings with it new systems of production, management and governance. All at speed. While the opportunities are there for us to take, we must be certain we will take them or we could be disrupted.

This means using technology to harness new ways to grow transparency, engage investors and manage risk effectively. From initiatives such as the Design and Distribution Obligations and ASIC’s Innovation Hub, our funds industry is making progress in putting the investor first, from protection to service, while innovating in the right way. We are all stewards of capital with a responsibility to build a sustainable and efficient industry. Whether you sit in a large or small organisation, we should all be working together to make our domestic funds industry a success.

Over the past few years Calastone has sought to work with the global funds industry to develop a new blockchain-enabled, fully digital, shared infrastructure. Our Distributed Market Infrastructure (DMI) was launched in May this year. Blockchain technology has so much potential to offer our industry and I am proud to say that we at Calastone have now connected the largest community of global financial organisations using blockchain. 

So, what does the DMI actually mean for the Australasian funds ecosystem?

The DMI will create a fully digital funds marketplace creating a fully mutualised, common infrastructure for all participants.

The capabilities of the DMI are akin to that of a smartphone versus a traditional mobile phone. In the way the smartphone opened a new world beyond just calling and texting for the mobile phone industry, the DMI will bring a huge range of new opportunities and services in funds. It will not just be about routing orders, but creating new business models.

Duplication duplication duplication…

In the funds industry, operating models and end-to-end transactional processes are slow and convoluted, and much of the information shared across the transaction chain is duplicated. Information is shared linearly, with trades hitting many points throughout the lifecycle.

This means that multiple reconciliation, settlement and payment teams across a fund business’ organisation are required to do huge amounts of work, while updating databases multiple times. The same data is continually reconciled, often by different teams within the same business. The process is so complex and confused that any order reference including the placement of an order can be lost once it hits the fund provider.

So how does blockchain help?

Our DMI moves the market away from this linear information flow based on messaging onto a shared ledger. Through this, we have created an ecosystem where everyone can access and use the same immutable, global database to transact. Data doesn’t need to be manually sent and validated across different teams and organisations, as the state change is visible instantly to all relevant parties as the data ripples across the entire transaction chain.

What does this mean for the future?

Our aim is to create more transparency with the faster, easier flow of information. By offering full visibility of trades for many more participants of the value chain, such as fund accountants, portfolio managers or sub-custodians. It can enable smoother fund transfers, and the ability to create fully electronic share classes offering minimal processing costs. It can create a more inclusive investment system where micro investors can be accommodated, thereby giving our whole economy more of a chance to save for the future.

There is much to look forward to with the introduction of this new technology into the market. The future is bright. Let’s work together to drive our industry forward!

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