What is your view on the impact that DLT and Blockchain is having in reshaping asset and wealth management? What is the current state of the space and how do you foresee it moving forward?
Solutions based on distributed ledger technology and Blockchain have taken great strides in the past year. Real-world offerings are online and available and companies in the financial sector are taking the first steps in the process of adoption. The focus at these companies is now less on the technology itself and more how they can digitally transform for maximum benefit.
For wealth management, there are two principal areas where DLT makes a significant difference. The first is the ability to radically re-engineer operations while the second is the opportunity to create new business models.
Operations become simpler, faster and more efficient
On the operations side, DLT brings to wealth and asset managers process automation and efficiency as well as cost-effectiveness. Running day-to-day operations via an infrastructure based on Blockchain is a truly fundamental change in wealth management.
Front, middle and back offices, across organizations and entire value chains, can be transformed to enable data and information to flow seamlessly between all actors. The complete process from investor onboarding, including KYC and AML tasks, to transactions and settlement to reporting is greatly simplified and made much faster. This is particularly important in an industry that is beset with manual administrative processes that have not changed for many years.
Business is transformed
Distributed ledger technology is an effective way to create new business opportunities and to grow or maintain a competitive edge. This is because the sharing of data and information, in real-time, will create value for the entire value chain. The capacity of all those in the wealth and asset management chain to have a complete view of what is happening is greatly enhanced.
Wealth and asset managers employing DLT solutions have the ability to move to expanded D2C models and thus grow and, importantly, diversify their client base. At a basic level, Blockchain enables alternative assets, such as private equity, real estate, art and many others, to be fractionalized via tokenization, but there is a greater change in this.
In a digitally transformed industry that makes use of DLT infrastructures, wealth and asset managers can deliver hyper-personalized services to more channels and more underserved affluent bands than is feasible today. Investors now expect high levels of customization, transparency and information on demand; a managers’ capacity to grow at scale while still providing made-to- measure services is inherent in this new world.
Overall, DLT reshapes wealth management to be a more innovative and responsive industry via a data-based and client-centric business model.
Lawmakers support innovation
The move to DLT is well underway and it is being helped by the various regulatory moves that have occurred in the past year.
On the EU level the European Commission’s proposed digital finance package – covering markets in crypto- assets (MiCA), digital operational resilience (DORA) and a pilot regime for DLT market infrastructures – has as its objective “to support innovation and the uptake of new financial technologies while providing for an appropriate level of consumer and investor protection.” In November, this moved closer to ratification with the European Council adopting its position on MiCA and DORA, thus starting the trilogue negotiation process.
Countries throughout Europe have introduced various laws on distributed ledger technology and this past year has seen important legislation from Switzerland and Germany.
August saw the coming into force of the Swiss act on the “Adaptation of Federal Law to Developments in Distributed Electronic Register Technology”. The legislation improves the conditions for Blockchain and DLT companies in Switzerland, with one of the key changes being a license for DLT trading facilities. In Germany, the “Electronic Securities Act” entered into force in June, thus implementing the main components of the Blockchain strategy of the German government.
The time is now
Maturity of DLT solutions is certainly some years away but there are already clear business opportunities present. The wealth and asset management industry is leaving the pioneering phase and is moving inexorably to the early majority phase.
Now is the time to begin the process and it is indeed a process, there is no big bang. Such a change as one created by DLT and Blockchain requires organization- wide transformation, both in terms of systems and mindset, but the advantages are clear.
This will enable wealth mangers to future-proof their businesses and be active players in the evolution of financial services.
What solutions does your company offer that asset and wealth management firms should consider?
FundsDLT provides a shared platform built on distributed ledger technology that aims to generate efficiencies, transparency and better client experience all along the investment fund distribution chain.
Wealth managers can streamline a range of tasks by using the FundsDLT Blockchain to automate processes in a secure manner. The platform facilitates data exchange in real-time and eliminates redundant activities.
The FundsDLT Platform Solution for wealth managers delivers:
- Digital account opening and position maintenance
- Real-time transaction and order processing
- Automated cash settlement and reconciliation
- Investor accounts maintenance
- An API portal and a cloud-native solution.
The solution also integrates:
A KYC solution with digital investor onboarding
A fund data hub delivering all information for investors and asset and wealth managers
At the heart of the FundsDLT Platform Solution for wealth managers lies real-time interoperability between all actors involved in investment fund distribution. This cross- boundary integration has many benefits and produces much operational efficiency.
Wealth managers have access to improved information and data flows and collaboration throughout the distribution chain.
The digital transformation of the investment process allows wealth and asset managers to:
Develop a customer-centric business model
Simplify business and operating models
Obtain data insight and information advantage
Build the technological capabilities for a real-time, 360° view of investors.
This article is from The Wealth Mosaic's WealthTech Views Report: DLT & Blockchain 2022. Access the full report here