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Blockchain-How the capital markets industry should respond

Blockchain-How the capital markets industry should respond



Angus Scott, Director and Head of Product Strategy and Innovation, Euroclear, and Ben Shepherd, Partner in the Strategic IT & Service Operations practice, Oliver Wyman, examine why blockchain - or distributed ledger technology - is attracting great interest within the capital markets industry.

 

Blockchain offers a new approach to data management and sharing that promises to enable solutions to many of the industry’s inefficiencies.


Some doubts persist. The technology is not yet scalable, few use cases have been properly developed and cost savings haven’t yet been sized. But the ambition is high: if blockchain technology can be widely adopted it could lead to fundamental changes for the various market participants, and could revamp large parts of the industry value chain.


To realise this potential, we believe that the industry should move forward in the following way:

Angus Scott, Director and Head of Product Strategy and Innovation, Euroclear, and Ben Shepherd, Partner in the Strategic IT & Service Operations practice, Oliver Wyman, examine why blockchain - or distributed ledger technology - is attracting great interest within the capital markets industry.

 

Blockchain offers a new approach to data management and sharing that promises to enable solutions to many of the industry’s inefficiencies.


Some doubts persist. The technology is not yet scalable, few use cases have been properly developed and cost savings haven’t yet been sized. But the ambition is high: if blockchain technology can be widely adopted it could lead to fundamental changes for the various market participants, and could revamp large parts of the industry value chain.


To realise this potential, we believe that the industry should move forward in the following way:

1. Finalise conclusive proofs of concept

Innovators face a tough time achieving market adoption of new blockchain technology solutions. Natural conservatism, stringent regulation, and the fact that solutions usually need to be embraced by several participants to be viable, all militate against progress.

Developers therefore need to devise a compelling use case, rooted in real problems that are being faced today, demonstrate why distributed ledger technology is essential, and explain clearly what benefits this will bring to the industry and clients.

2. Pressure service providers to innovate

In cases where the business logic does not make sense for developers, or where a better solution even reduces service providers’ revenues (and customer costs), customers need to challenge participants themselves to invest in innovation and produce an improved capital markets ecosystem.

3. Size potential savings from blockchain

Before deciding to develop or adopt new blockchain solutions, participants need a comprehensive grasp of their operational costs, and should identify those areas where new solutions will make the greatest impact. Little cost benefit analysis has been done to date.

4. Maintain commitment

Initial failure to overcome barriers may well dampen the current enthusiasm in the industry. Participants should not be deterred. If they believe in the potential of blockchain, they must continue to advance the agenda and stay engaged.

5. Adopt a trial and learn approach

The process of innovation is not linear. Initial solutions may well have flaws, and vital lessons can be learned. Participants must accept this process. They should embrace new ideas so that failings are exposed, smoothing progress to an improved model.

6. Combining capital markets expertise with technology specialist insights

Leading participants in capital markets hold a massive amount of collective knowledge, from industry conventions to detailed regulatory requirements. To make eventual solutions as relevant as possible, this knowledge must be shared with the technical specialists. Significant progress has been made on this with the emergence of capital markets-focussed blockchain fintechs and consortia.

7. Continue dialogue with regulators and supervisory bodies

Progress is not possible without the buy-in of regulators and supervisors. Through the establishment of working groups, participants must be in constant communication with the authorities. In this way, any concerns on the security and robustness of proposed technical solutions, on legal matters and many other issues can be openly dealt with.

Blockchain: How the capital markets industry should respond (pdf-483KB)

Blockchain is attracting great interest within the capital markets industry. It offers a new approach to data management and sharing that promises to enable solutions to many of the industry’s inefficiencies.

 

 

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Blockchain is attracting great interest within the capital markets industry. It offers a new approach to data management and sharing that promises to enable solutions to many of the industry’s inefficiencies.

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