In a co-written report between JP Morgan and consulting firm Oliver Wyman titled Unlocking Economic Advantage with Blockchain: A guide for asset managers, JP Morgan argues that Blockchain will bring about a “radical shift” to the asset management sector.
“There is a growing realization that Distributed Ledger Technology (DLT) — popularly known as Blockchain — will bring a radical shift in the way we think about financial assets and the way the financial industry will operate in the future. The Blockchain journey is likely to be long and the outcome is uncertain, but a consensus is forming that it is the real deal. Disregarding it is a risk.
“…we argue that asset managers need to get off the sidelines and take the initiative to understand and embrace Blockchain.”
1. Blockchain is the real deal
• Blockchain-related interest and investment have reached critical mass, and the technology has shown itself to be capable of driving major change.
• By enforcing convergence on common data standards and eliminating the need for a central authority to hold a “golden record,” we can reduce reconciliation and facilitate seamless transfer of digital assets.
• Rather than presenting a “Blockchain 101,” we instead make the impacts of a transition to Blockchain infrastructure approachable and tangible, clearing up common myths and demonstrating how this technology has the potential to reshape financial markets and ultimately the client experience.
Our view is that Blockchain’s impact may eventually reshape market structure, product capabilities and the client experience, ultimately having a lasting influence on the global economic system
2. The opportunity for asset managers
• Blockchain can help asset managers tackle many of the challenges they face today: managing data; providing solutions, not just products; and providing continuing service value to clients in a changing competitive landscape.
• Asset managers can achieve material cost benefits across front-, middle- and back-office activities through a reduction in data manipulation, the decommissioning of legacy infrastructure and lower frictional costs of investment.
• Revenue opportunities will grow out of the improved data sources, greater liquidity and lower frictional costs fostered by Blockchain. Asset managers will be able to serve clients in new ways, for example, with real-time reporting or alternate trading strategies.
• Ultimately, end investors may be the greatest beneficiaries, as asset managers and other providers compete by offering improved propositions and passing on savings.
3. Time to get off the sidelines
• Many asset managers have taken a wait-and-see approach, under the assumption that any eventual cost savings or opportunities will flow downstream. We believe this is a mistake.
• Early engagement is essential for asset managers to drive prioritization of the right issues and use cases; competitive advantage can be gained from working with the right partners early on to develop real world solutions.
• Partners and regulators require the input of asset managers to ensure suitable governance and data management standards, as well as help in navigating design implications.
4. The CxO playbook
• Blockchain is quickly becoming a C-suite issue for asset managers, and the CEO, CTO and COO all have roles to play.
• The CEO needs to outline the vision for how the organization engages with and adopts Blockchain.
• The CTO needs to lead understanding and development of Blockchain capabilities as part of the broader FinTech agenda.
• The COO needs to understand Blockchain applications and how to extract their benefits, while ensuring Blockchain makes up part of a coherent target operating model.
• For each, we lay out a series of actions to help them achieve these goals.
Investment in Blockchain start-ups has released US$300 million to date, said the report – with US$125 invested throughout 2015 and that figure “already surpassed” in the first half of 2016.
Blockchain will not be limited to the back office of the asset management industry and other behind-the-scenes processes, according to the report.
“Our view is that Blockchain’s impact may eventually reshape market structure, product capabilities and the client experience, ultimately having a lasting influence on the global economic system,” it said.
The development of Blockchain is anticipated to come in four ‘waves’ over the next few decades.
During the first wave, between 2016 and 2019, simple applications focused on more robust and consistent data sharing will continue to emerge.
The second wave (2017-25) will see distributed ledger technology and smart contracts used in combination to store and share core transaction data.
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