March 2017

SPONSORED FEATURE: Why blockchain could be the fund industry’s next Ford Model T

Blockchain aims to radically change the way investors can access funds, says Olivier Portenseigne, Managing Director and Chief Commercial Officer of Fundsquare. Progress in most industries tends to be incremental but every so often a disruptive technology emerges that has the potential to shake up an entire business model. History provides a number of examples. In 1908, Henry Ford’s Model T became the first affordable car to enter the market and transformed the automobile industry. The advent of the internet in the 90s helped revolutionise the way people access information today. In the fund industry, Blockchain aims to do something similar by radically changing the way investors can access funds. For too long, fund managers have faced considerable challenges in marketing their products and meeting regulatory requirements while keeping their businesses profitable. Investors have also relied heavily on third-party intermediaries to invest in funds. In Luxembourg, efforts have been made to reduce costs and increase efficiencies associated with intermediation by automating processes in the fund distribution cycle. However, efforts towards disintermediation have yet to bear fruit. With Blockchain, the fund distribution model is set to undergo a digital transformation that will impact all major players. OUR MODEL T
In late 2016, Fundsquare partnered with InTech and KPMG to launch FundsDLT, an experimental, decentralised fund order processing engine based on distributed ledger technologies, digital tokens and smart contracts. The aim was to create a shared economy that enables asset managers, with existing actors, to sell directly to retail investors. The operating model sees an investor going through a smartphone application to access fund information and performing KYC duties, then processing an order by provisioning cash through digitalised token. On the other side, transfer agents will inspect the KYC elements collected and accept the order, while an asset manager can follow up inflows and outflows in the registrar in real time. Once the NAV has been published, the entire settlement process is executed instantaneously. FundsDLT intends to operate through an API framework that delivers an open standard covering account creation, transaction processing, KYC, payments and entitlements. This is expected to lead to broader changes in Luxembourg’s pool of expertise. Intermediaries like transfer agents have great stores of knowledge and are well placed to play an active role. CONSUMERS COME FIRST
FundsDLT benefits all aspects of the value chain. It is expected to reduce the cost and processing time for transactions by streamlining administrative and order-routing tasks. For example, it can currently take up to three days for a transfer agent to execute a client’s order. This new product will do it in a couple of hours after NAV publication – and in the not-too-distant future, with multiple NAV per day. The proposed ecosystem created by FundsDLT will also ease AML/KYC and MiFID verification by standardising the process and factoring in such repetitive tasks into a centralised utility. These capabilities draw on smart contracts, considered to be the most secure transaction technologies in existence. As a result, investors, asset managers, custodian banks and transfer agents will share information in a far simpler manner. More importantly, FundsDLT will work towards providing investors with greater choice. As low interest rates make saving for the future more daunting, investors will need to take an increasingly active role in managing their pensions. With a single ecosystem, investors can get better access to information and choose from a wider selection of funds. A new fund ecosystem like DLT can also reduce barriers to entry and bring “mass affluent investors” into the market. Getting investors on board will be crucial if the industry is to take the next leap. As the car and internet revolutions demonstrated, the fruits of new technology must be accessible to the masses in order to have a profound impact. ©2017 funds europe

Sponsored Profiles

SPONSORED FEATURE: Investing for income

May 17, 2017

Portfolio Manager Thomas Kruse examines the findings from Pioneer Investments’ survey on income investing and outlines ways of achieving a target income.

SPONSORED ARTICLE: A radical solution to KYC concerns

May 17, 2017

The 1MDB affair shows that lax know-your-customer and due-diligence procedures are a major risk, says Paolo Brignardello, head of product management and marketing, Fundsquare. New solutions are...

SPONSORED FEATURE: AIFMD - What does Brexit mean?

Apr 18, 2017

An open discussion between funds industry experts and initiated by SGG Luxembourg took place in London to examine  the implications of Brexit for UK fund managers marketing to the EU.

SPONSORED FEATURE: Luxembourg fund reporting – CRS vs FATCA

Apr 18, 2017

Luxembourg funds need clear procedures for CRS compliance, writes Andrew Knight, Partner at M Partners, a member of the Maitland network of law firms.

Executive Interviews

INTERVIEW: Finding managers that can (and do)

Apr 18, 2017

Fabrice Kremer, a fund selector at Banque de Luxembourg Investments, has berated fundamental managers for failing to beat indices, but he remains committed to active funds. He speaks to Nick...

JERSEY INTERVIEW: ‘A steady sort of place’

Mar 21, 2017

The chief executive of Jersey Finance is keen to portray the island as a stable, trustworthy jurisdiction. He talks to George Mitton.

Roundtables

MARKETING & BRANDING ROUNDTABLE: It’s about aspiration

May 17, 2017

With such an intangible product, it can be hard for asset managers to communicate what they do. Having personality and connecting with customer aspirations may be the key, our branding roundtable hears.

ROUNDTABLE: The issue is perception

Mar 21, 2017

Our panel discuss tax transparency, the elegance of private placement and why Jersey could do more to promote itself. Chaired by Tom Cowsill in Saint Helier.