Luxembourg: Coming Out Of Luxembourg: A Blockchain-Based Product For Asset Managers

Last Updated: 15 December 2016
Article by Said Fihri

Most Read Contributor in Luxembourg, September 2017

Somewhere on every asset manager's wishlist has been a FinTech solution that fosters a more direct connection to their end-users. After all, bankers have gotten big data and artificial intelligence tools, investment specialists have gotten robo-advisors, and compliance officers are getting plenty of RegTech offerings.

Well, just in time for Christmas we are pleased to announce that a blockchain-driven product for fund managers has arrived. (A live demo was held yesterday on KPMG's premises in Kirchberg). The result of a collaboration between Fundsquare, InTech (subsidiary of POST Group) and KPMG Luxembourg, the platform will allow asset managers to sell funds directly to investors, which in turn will dramatically reduce the cost of administration and the time taken to process transactions.

The platform, which could perhaps be better called an ecosystem, aims to streamline a whole range of fund administration and order-routing tasks by using blockchain to automate several processes in a secure manner. In other words, the messaging that must occur amongst the investor, the asset manager, the custodian bank, and the transfer agent is about to become much simpler. Whereas the time between an investor making a decision and a transfer agent executing it currently takes up to about six days, this new fund distribution product will do it in a couple of hours. And in the not-too-distant future, seconds.

Naturally, these six days, and the money invested in them, is something that many fund managers and investors are eagerly looking forward to getting back.

Notably, unlike similar products recently launched, this fund platform will ease AML/KYC fund data look-through and MiFID verification by standardising it and allowing the factorisation of such repetitive tasks. These capabilities draw on smart contracts which are considered to be the utmost in cyber-secure transaction technology. This feature should answer one of asset managers' main compliance bugaboos.

The dawn of an ecosystem

As a market infrastructure, Fundsquare is ideally placed to offer a fund blockchain for investment professionals. Olivier Portenseigne, Managing Director of Fundsquare, described the company's role in administering the distributed ledger:

"Since blockchain's original usage with Bitcoin, we have been wondering how we could unlock the technology's potential for investment funds. We soon realised that it had the potential to revolutionise not only one part of the distribution process, but the entire supply chain—the difficulty, however, lay in turning the talk into action. This is how our small commando team was born. With InTech and KPMG Luxembourg, we were able to take a pragmatic approach to the project, and in doing so, speed up the development process. The live demo today is a real milestone in this process."

InTech, a Luxembourg-based IT company, has been working on blockchain codes, smart contracts, and user interface. Fabrice Croiseaux, CEO of InTech, explained how the new product would revolutionise the industry:

"By combining our expertise around distributed ledger technologies, Fundsquare's vision, and KPMG's deep understanding of the fund market, we have been able to deliver the foundation of a new generation platform in a very short time. It is not only the investor and asset manager that can plug into the system: everyone in the fund distribution supply chain, from custodians, to transfer agents, to asset service providers, can benefit. It really aims to connect the dots, by harmonising a currently fragmented fund distribution process."

KPMG Luxembourg, for its part, advises on user experience based on our knowledge of the asset management industry. We also wrote the business requirements for the development of the product. If the analogy can be forgiven, we are the glue combining the IT engineers and the order-routing specialists to ensure that the end product is exactly what asset managers want.

Luxembourg's back-office crown

Naturally, the new product augurs a broader change in Luxembourg's pool of expertise. Intermediaries like transfer agents have great stores of knowledge and are well placed to be an active part of the industry's revolution. However, they also have the most at stake when it comes to the brand new world of digitalised fund distribution.

Blockchain technology has been a favourite topic amongst 2016's top speculators, as a technology enabling secure transactions that could be applied in a myriad of areas (this recent article singles out the top 25 potential uses from a pool of 120). We are very pleased to see this talk start to crystalize with InTech, Fundsquare, and KPMG's new offering. Please visit the FundsDLT webpage if you are interested in more information.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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