McKinsey Report States Blockchain Will Dramatically Reshape the Capital Markets Industry

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Consulting firm McKinsey & Company has stated in a fresh report that the wider adoption of Blockchain technology by financial incumbents will probably take place in the near future development but will require close cooperation among market participants, regulators and technologists.

Their report “Beyond the Hype: Blockchains in Capital Markets”, says that Blockchain technology will “dramatically reshape the capital markets industry”, impacting business models, cost savings and capital requirements in the sector and the adoption of Blockchain technology will have significant short term benefits, bringing faster clearing and settlement to the capital markets, while reducing the number of ledgers needed to be maintained by financial institutions and ensuring audit trails are more precise.

But they are worried about fragmentation and the chief worry appears to be that the financial industry needs work together to reap the benefits of the Blockchain, a conclusion that supports recent efforts by major banks to back efforts like distributed ledger consortium R3 and also with the more recent Linux Open Source collective – the ‘Open Ledger Project‘.

The report said blockchain technology is likely to deliver a range of benefits across the capital markets value chain, from clearing houses and exchanges to prime brokers and banks. However McKinsey also warned that the technology is still largely unproven in complex markets. Other challenges in developing applications include not being able to amend blockchain transactions after the fact, the digitization of assets, asset disposition, position netting and computing power.

“Banks will also face challenges related to market, legal and operational protocols, issues concerning adoption and route to market, and interoperability, as well as internal hurdles related to expense pressures, technology architecture design and cultural resistance,” added McKinsey.

The report said there is potential for central banks to simplify and de-risk the wholesale deposit and payments processes by facilitating digital settlement for banks. The Bank of England is conducting research on central bank–issued digital currencies.  In September Andrew Haldane, chief economist at the Bank of England and executive director, monetary analysis and statistics, said in a speech that it may be possible for government-backed currency to be issued in an electronic rather than paper form.

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Founder of Blockchain News and The Hackitarians Foundation, Richard Kastelein is an award winning publisher and editor, hackathon organiser and entrepreneur. He has written over 700 articles at Blockchain News, has a massive network in the Blockchain arena and is available as a speaker and consultant. (richard@the-blockchain.com) Kastelein has spoken (keynotes & panels) on technology at events in Amsterdam, Barcelona, Belfast, Berlin, Brussels, Brighton, Copenhagen, Cannes, Cologne, Curacao, Frankfurt, Gdansk, Hollywood, Hilversum, Geneva, Groningen, London, Las Vegas, Leipzig, Madrid, Melbourne, NYC, Oxford, Rio de Janeiro, Sheffield, San Francisco, San Jose, Sydney, Tallinn, Vienna, and Zurich. A Creative Technologist & Canadian (Dutch/Irish/English/Métis) his career began in the Native Press (Canadian Arctic) and he later spent a decade in the Caribbean media. Currently, he writes occasionally for Wired Insights, Guardian & Virgin and his articles have been translated into Dutch, Greek, Polish, German & French.