Natixis has initiatives under way to implement a blockchain-based environment that will handle order flow, cash clearing and settlement for its funds, Olivier Taille, project manager and blockchain officer at Natixis Asset Management, told FSA.
The new platform will also maintain client accounts and fund shareholder registries. It is targeted for implementation in the second half of 2018.
“It should change the way we run our business with distributors and it will help us reduce costs,” Taille said.
Blockchain is a digital ledger managed collectively by a network of computers using cryptographic algorithms. The access to the data held in the decentralized database is determined by a set of permissions.
The bitcoin blockchain was the first implementation of the technology, but several others have been created. Natixis is developing its new system on the Ethereum blockchain. It is notable for the ability to implement digital contracts, which can replicate attributes of more complex financial instruments, such as bonds.
Back office revolution?
The greatest promise Natixis has identified in blockchain technology is in the way it can revolutionise the mundane aspects of order handling and book-keeping.
“There are many intermediaries between investors and the asset manager,” Taille said, “The value chain is very long, very costly.”
All participants in this value chain, from financial advisors, through distributors, order-processing platforms, transfer agents to security depositories, not only create opacity but also collect fees, which the fund passes on to investors.
By eliminating some, or even potentially all links in this chain, blockchain would reduce costs and provide both investors and fund managers with much needed transparency.
“It can provide [fund managers] with real time reporting, with KPIs (key performance indicators) on their activities, and with aggregate information on the behaviour of clients with a specific profile,” said Taille. “It will allow us to create new services that will benefit clients and distributors.”
The implementation of these back-office functions on the blockchain will disintermediate banks, which carry out most of them today.
Taille said that Natixis could implement blockchain and reap its benefits even if the rest of the industry does not immediately come on board.
Each blockchain-supported function will come with a client interface in the form of an app clients can use. But the firm is also developing APIs (application program interfaces) that will allow its systems to communicate with legacy applications of clients and distributors who do not want to use the apps. “It will support every type of distribution model,” Taille said.
Bringing this technology to life will be gradual. The firm has been testing the platform by feeding it real clients’ orders since the summer of 2017, Taille said.
“Right now we are working with an institutional investor to move some of their funds on this type of infrastructure,” Taille said. “We are also in discussion with some of our distributors about adopting this new platform.”
