A new report sponsored by Linedata examines the application and benefits of distributed ledger technology (DLT) to the buy-side and what is required from both partners and regulators to facilitate, accelerate and maximise those benefits.
‘Distributed Ledger Technology – An Emerging Consensus on the Buy-Side’ – is based on interviews with Asset Managers, Vendors, FinTechs, Service Providers and Consultants and is co-authored by well-known industry consultants Dr Ian Hunt and Chris Mills.
The report captures the optimism of DLT and blockchain, as well as identifying the most effective contribution which could be made to the acceleration of DLT benefits by the service partners of asset managers. The result is a consensus on buy-side objectives and priorities for DLT, to enable all buy-side participants to collaborate more effectively.
According to the report, asset Managers need to educate themselves, and take informed decisions on their approach to the delivery of DLT, while the buy-side must engage in a coherent dialogue, making clear to partners in the Regulators, Service Providers, Vendors and Standards Bodies what it needs and expects.
In addition, the buy-side needs to be clear about its own objectives, and to communicate them effectively. These DLT initiatives should offer direct benefit to the asset management and asset owner community, which will often differ from those with attractions to the sell-side
The research highlights the risks posed by leaving the technology to the sell-side, which has historically taken the lead on innovation and development. If there is no buy-side control, then the sell-side will dominate the agenda, take ownership of the technology, and ultimately shape it to suit their own divergent interests.
Despite the current picture of adoption being well behind the sell-side, the paper reveals that the buy-side clearly recognises and values the potential benefits of DLT. As well as facilitating the transformation of buy-side architectures, and promoting real dematerialisation, the buy-side identifies strong cost savings, material opportunities for revenue enhancement, and meaningful risk reductions.
It is clear from the research that the buy-side needs and wants to establish a clear direction and priorities with regulators, partners and counterparties. To do this there is a need for industry collaboration, which can curate the buy-side’s interest in DLT with their partners at an industry level.
Hunt and Mills say: “The buy-side needs to wake up to the potential of distributed ledgers and blockchain, clearly prioritise the most relevant and achievable benefits, and drive the developments that deliver those benefits. This means being very clear with service providers, vendors and regulators about what we need from them to facilitate and accelerate benefit delivery.
“We are very grateful to Linedata, as co-sponsor of the report, for supporting the development of a buy-side consensus, and for helping to bring DLT to the fore as a transformational technology for the buy-side.”
Ed Gouldstone (pictured), Head of Product Management for Asset Management & Servicing at Linedata, says: “The combination of strong growth, sharper client expectations and heavy cost pressure provides an enormous transformational opportunity for DLT. However, unless the pattern of participation switches to the buy-side, the threat is clear: the chance will have been lost to shape the technology for the maximum benefit of asset managers and their clients.”
