Blockchain: are there any real drivers?
by Michael King and Alex Powell
People of a certain age have seen many trends come and go. Some of us remember watching black and white television and for many, we have seen the digital explosion creep up on us. Today’s world is unrecognisable to that of 20 years ago but have some of the challenges facing industry changed?
I like many, squirrel away documents and ideas and often keep hold of the old technology that it is stored on. It was on a floppy disc (shock horror) that I found an early presentation of change and their drivers.
So in 1996 I was presenting the following headline change topics to a group of banks and corporates with a view that they would all be starting to appear in the early 21st Century
- Services that serve specific buyer and seller communities with integrated, end to end solutions is the way forward
- Transparent and global technological and functional standards for banking products
- Alliances/mergers between logistics providers and financial institutions
- Partnerships that tie finance, logistics, processing and settlement into one end to end technological solution.
So have we achieved any of them 20 years later?
- Yes, digital marketplaces, such as Amazon have done this
- No, although the drive towards open APIs is promising. In my view cash management has not moved forward in 20 years.
- Potentially with Google and others
So what is the point?
Financial services have for years made money out of inefficiency and lethargy from consumers. Corporates have yelled for transparent payment services with tracking of cash as far back as I can remember to little avail. In early 2000, I recall David Blair, at Nokia at the time, stating “money you don’t know about is money that you don’t have”.
There has been a huge amount of goodwill and effort from multiple people in the banking industry all trying to do the right thing by their clients and the community but with flat foreheads from banging up against the wall of the system.
So true change agents for the finance industry are unlikely to come from the finance industry itself but from other industries doing something similar and the following two areas maybe the ones where out of industry thinking, together with Blockchain, could be rapidly deployed.
Proxy voting - Over the years, proxy voting has often been highlighted as prone to error, massively duplicated, costly and increasingly subject to good governance scrutiny.
There has been a lot of effort to “automate” the existing process with some success as well as multiple papers extolling the benefit for custodians to outsource to “shared services” whether run by a utility or a data provider.
At the end of the day, what every client actually needs is the original announcement as quickly as possible, to give them the maximum amount of time in which to make a voting decision which gives thought that providing proxy voting services may well be something that an out of industry provider such as Global Election services, who have experience in running online voting may well step in
If you combine an easy to use mobile voting device to an immutable DLT ledger that is public domain so that voting is transparent, timely, provable and accessible to all at the same time the issues and services offered by others could disappear. For every company, their board could see that both institutional and private investors were exercising their obligations.
Admittedly the voting system would have to be more sophisticated than election voting to cater for the myriad amounts of voting that can be cast but a lot of this could be templated with a simple number and for, against or abstain vote.
If voting is all transparent to all and all “investors” are duly registered is it such a large step to add data to the voting record? Might it already be there in G Cloud or similar?
Corporate actions - Without looking at the nirvana of the Golden source or record there have been several attempts at the collaboration of various data sources to improve corporate action quality early in the value chain. One major challenge for all participants is the need for certainty that key data remained unchanged and the challenge for commercial data companies to share information and who will pay. A blockchain could help here.
Corporate actions could be integrated into a securities ledger on a blockchain and then execution of the action can happen via a smartcontract which updates everyone's shareholding. And as everyone is using the same shared ledger, custodians, investors and the company registrar do not have to update their own system.