[ A U S T R A L I A
S P E C I A L ]
Digital Asset maps out how DLT
can reshape custody ecosystem
GC Legend and Digital Asset’s head of financial product, Kelly Mathieson,
discusses how custodians of all sizes can integrate distributed ledger technology.
The custody workflow is set to change over the next few
years as securities market infrastructures integrate distrib-
uted ledger technology (DLT) into their operational core,
according to Kelly Mathieson, head of financial product at
Digital Asset.
“There are three groups that we see emerging,” says
Mathieson, a 2013 inductee in Global Custodian’s hall of
fame for her work at JP Morgan. “The first are entities that
tend to have both local and global custodians within their
organisations. Many of these are taking a prescriptive look
at their technology to determine how they may be able to
participate directly in market infrastructures where this
technology is being contemplated.”
In Australia, for example, where the operating environ-
ment is set to change as Digital Asset works with the
Australian Securities Exchange (ASX) to implement a new
DLT-based clearing and settlement platform, maintain-
ing a separate local and global custody structure may no
longer be necessary. “DLT technology can allow for a global
custodian’s accounts to be held directly at a CSD,” says
Mathieson, though local custodians will still be valued for
their expertise in areas of asset servicing, such as tax and
proxy voting. Such custodians, she suggests, will begin
to look at collapsing their operating infrastructure to gain
the efficiency benefits of no longer needing to maintain
duplicate accounts.
Mathieson does not see the risks of disintermediation
from this technology as high, however. “Unless the ulti-
mate beneficial owners, such as teachers, firemen or civil
workers decide they want to administer their own assets
on the distributed ledger, there is going to be a need for
custodians,” she says. “There is, after all, still the agency
function and the ability to oversee activities associated
with managing assets in many different scenarios, not to
mention the crucial aspect of fiduciary responsibility.”
The second group that Mathieson identifies includes
smaller custodians, for whom DLT affords the opportunity
to become more competitive on the global landscape as
the need for a complex network management structure
lessens. “While there are, so far, a few markets where DLT
is likely to make that possible in the next few years,” says
Mathieson, “we have seen quite a number of these banks
gaining interest.” Their motivation is partly to understand
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Fall 2018
how they can hold their assets directly on the registry, but
they are also keen to engage in the “value-added” services
that flow from that, such as securities lending, collateral
management and the reuse of assets for margin manage-
ment purposes, since those are the services that attract
the higher margins.
Mathieson insists that the smart contracts underpinning
transactions on a DLT platform are legally robust. “When
we do our product development, we gather perspective
from local counsel to make sure that our product design
conforms to relevant law. The smart contracts simply repli-
cate law as it is,” she says
Mathieson describes the third group as departments
within the custody organisation which are attracted by the
nature of the data enabled by a DLT platform. “That data is
real-time, perfectly reconciled and risk auditable,” she says.
“Custodians can rely on it to make credit decisions in the
moment, to compile it across relationships as the trans-
actions are happening. That allows for the creation of new
risk management and data-enabled products.”
Over the past few years, says Mathieson, there has been
an evident trend among transaction banks to combine
investor services, securities services and corporate and
investment banking. “What has not previously happened,
and is now starting to happen, is that the operating risks
across those businesses are starting to come together,” she
says. As a result, securities services executives are, for ex-
ample, assuming responsibility for markets operating risk
and are looking for data to support their expanded role.