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depending on your market, up to a dozen entities have a stake in,
how are you ever going to intelligently satisfy your clients?
The challenge for financial services is to leverage this tech-
nology in a way that preserves the value of the services and the
essential oversight of assets.
GC: Is there a certain moment that needs to happen for custo-
dians and clearing banks to come on board to the idea of smart
contracts?
KM: The real catalyst for change will come from doing the ac-
tual work of modelling workflows and creating smart contracts.
That is, the exercise of examining activities across multiple
parties, expressing contractual rights and obligations across a
lifecycle of actions that drive the most meaningful businesses
cases.
The industry is beginning to move beyond proof of concepts
and focusing instead on production mandates. In doing so,
the attention is on the mutualisation of infrastructure and the
opportunity for considerable cost savings by essentially being
able to eradicate zero-value work associated with reconciliation.
Operating from a common record will also reduce the number
of errors, and the associated risk. However, in terms of oppor-
tunities, DLT isn’t just about cutting costs, it’s about deeply
connecting independent entities - even competitors - in a way
that preserves data privacy and integrity at scale, coordinates
multi-party workflows and results in higher quality data.
This is what 2019 will be about - the chance to go beyond
proofs of concept and get into production mandates with the de-
monstrable quality and stability required of enterprise systems.
In the same way the internet took time revolutionise commerce
and information access, the use of DLT is going to be focused on
proving out workflow scope, scale, performance before it will
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become pervasive.
GC: Are attitudes changing to the practicality and strategy of
organisations adopting this technology?
KM: The emphasis is certainly shifting toward business cases
with solid outcomes - the elimination of unnecessary steps in
clearing and settlement processes, the reduction of risk and
associated capital costs in operating processes, the ability to ex-
pand STP across client and counterparty activities, the creation
of new services. It’s on real business challenges that current
technology, marked by separated workflows and duplicated data
stores, cannot address.
HKEX, for example, is looking at how DLT can solve real-world
business challenges better than the systems in use today. We
have had the opportunity to work with them on a prototype that
demonstrates how the Northbound Stock Connect programme
can become more accessible to global investors. Their goals fo-
cused not only on validating the technical feasibility and appli-
cability of using DLT, but also on driving direct connectivity to a
broader range of market participants and automating much of the
complex multi-party workflow for trade allocation and settlement
initiation.
So, yes, the attitude toward DLT in financial services and
other industries is shifting. As with most change involving
enterprise systems in highly regulated markets, change occurs
only when solid business cases can be solved with innovation.
Adoption will not be overnight, and the work to prove that DLT
can address practical business needs is not complete. But, the
work has materially advanced such that the evaluation of DLT
has advanced as a topic of discussion among global institutions,
industry infrastructure entities, regulators and business leaders
around the world.
Spring 2019
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