By moving to a blockchain platform, Calastone seeks to address the high cost of funds distribution and operational risk resulting from manual processes, older systems and legacy technology.
Calastone, a fund transaction network, announced on Tuesday (4 December) that it will be migrating its 1,700-strong global client community to a blockchain-based transaction platform in May 2019.
Headquartered in London and with four offices across Asia Pacific, Calastone processes 9 million messages and GBP 170 billion (USD 217.3 billion) in transactions per month for clients in 40 jurisdictions.
Calastone has developed its new Distributed Market Infrastructure (DMI), billed as one of the first major uses of DLT (distributed ledger technology) by the global funds sector, which has traditionally trailed other financial services sectors in adopting technology and best practice. The company expects the DMI to help transform mutual fund trading by reducing friction points in administrative processing, reconciliation and settlement through digitisation, while also simplifying the exchange of information between asset managers and fund distributors.
Today, the funds industry’s use of manual processes, older systems and legacy technology results in a higher cost of distribution and operational risk, which Calastone seeks to address through the new platform. By moving to a blockchain platform, participants will benefit from a real-time view of each record and, from a data perspective, a single version of the truth.
According to Ross Fox, Calastone’s acting managing director for Australia and New Zealand, this development comes at a time when funds are experiencing margin pressure globally from an increasing compliance burden. MiFID II represents a particularly large driver of compliance investment globally – the end result being underinvestment in other parts of the funds business, including in technology and operational best practice.
Within Asia Pacific, there are also an increasing number of funds passporting and mutual recognition schemes. “Globally we play a role in the distribution of UCITS, and in Asia we already support programs like the Chinese-Hong Kong Mutual Recognition Scheme,” says Fox. “We are watching the development of the Asia Region Funds Passport (ARFP) closely and supporting the pilot. Technologies like ours reduce friction in cross-border distribution of funds in these schemes.”
Once tax and regulatory issues are resolved, Fox thinks schemes like ARFP will over the longer term establish themselves as an important channel for fund distribution in Asia Pacific.
Matthew Chan GAICD is specialist in public policy. He advises boards and management in Asia Pacific on financial services strategy and operations. Matthew has worked as a practitioner in international capital markets, financial technology, FMCG and government policy, and is a regular contributor to Regulation Asia.