TURN is a UK-based business that enables the sharing of mutual funds regulatory and operational data between financial services businesses such as asset managers (that create and administer the funds - think the likes of Blackrock or Vanguard or Fidelity) and distribution businesses such as investment platforms (think Aegon or Hargreaves Lansdown), banks or advisory networks. Firms in the ecosystem need the data for pre-and post-sale disclosure (and other) requirements. These requirements apply across Europe and derive from European financial services regulations, such as PRIIPs, MiFID, Solvency 2 and SFDR. However, don’t worry, I’m not going to talk about TURN, except tangentially, but focus on why it chose a blockchain solution for its customers which operate in the financial sector. I’ll then use this real-world example to suggest other promising areas in financial services, related to asset management that would likely benefit from the use of blockchain.
So, why are blockchain-powered solutions increasingly being sought especially in the financial sector? Well, it seems that there are three key criteria - transparency, resilience and auditability that drive the use of blockchain technology, as opposed to a conventional data warehouse solution.· transparency - regulated financial services businesses need to know where their data is shared, even when the data is drawn from publicly available data. They’d also like to know that the data hasn’t been changed, edited or corrupted, and also need to know it is up to date. Regulated companies have to be assured that the data being used for pre-and post-sale regulatory disclosures is accurate and complete.
· resilience - all financial services businesses have specific regulatory obligations about resilience - being there for customers when things go wrong. As the data they share is used for regulatory disclosures - risks, what customers will pay for the products and services they buy - firms like the resiliency offered by blockchain technology. The data is much less likely to be corrupted or overwritten, giving assurance about the quality of the data.
· auditability - things go wrong in business, not just in financial services, and businesses want - need - to be able to discover what disclosures were made to customers and when. The most obvious is in cases of mis-selling scandals (think PPI or pensions transfers or the current investigations about commission disclosures in respect of car sales or leases).
Different divisions within regulated companies will have different requirements as to the type and nature of the data they need access to whether it be for compliance and reporting purposes, those with responsibility for Consumer Duty, independent directors, regulators, sales and marketing departments. Typically, all of these various users require re-assurance about what was disclosed and when to customers. The regulators will want to know about how firms can track and trace, i.e. give assurance and proof (a blockchain can help to meet such challenges). But the use case for this part of the financial services industry and in the specific use case - of sharing specific pre and post-sale regulatory data for disclosure to (and in the case of consumer duty) or about retail customers - is just an example of why businesses in this sector should be considering blockchain technology. But before we get there, why not consider why costs and risks are so omnipresent in financial services processing? Why do we have so many processes, so many handoffs, so many requirements for reconciliation? The most likely answer is that the industry automated existing processes, which, because they involve money, always attract more care and scrutiny.
The world of Tesla, SpaceX has shown that new approaches are possible. In manufacturing, instead of building/assembling from lots of individual components, assembly is simplified. Could blockchains permit the radical simplification of processes, already broken down into small, separate processes, then outsourced or separated? If there were fewer processes, fewer steps needed, or if there was ONE data base that various parties could access that was immutable, then surely that would permit the driving down of costs as well as the reduction of risk? One example where this could be applied is in the world of CASS/Client Money, Settlements & Trading. Regulated businesses in this space (custody banks, transfer agencies, trading systems, etc) all have in common that their world is already digital. Businesses are settling rights, not physical things. Money is settled between bank accounts. Securities are de-materialised. Traditional asset management involves multiple intermediaries (such as brokers and clearing houses, transfer agencies and custodians) to settle transactions, which can take days. Blockchain technology reduces the need for many of these intermediaries, enabling transactions to be verified and recorded in almost real-time, reducing settlement times from several days to just minutes and so achieving delivery v payment (DVP) - a concept outlined way back in 1992 by the Bank of International Settlement. Being more efficient and settling transactions faster helps banks, brokers, clearing houses, asset managers, etc, deliver faster results to clients, as well as driving down costs and derisking processing. It will also free up scarce capital, otherwise needed to support failed or delayed settlements, not to speak of the increased risks of corporate actions in any delay.
What blockchain technology offers is the opportunity to replace intermediary centralised systems and data often reliant on a single point of failure - e.g. one server in one location to a more decentralised style of data management. It removes the need for multiple ledgers being created by different intermediaries that all need auditing and maintaining, thus streamlining processes to provide timelier and accurate data and enhance reporting accuracy. As far as settlements are concerned, companies don’t have the luxury of time. Long gone are settlement periods such as accounts or T+5 or 3. Now it’s T+1. Why not same day settlement? The more intermediaries engaged in buying and selling a fund or security and the longer it takes to complete a transaction, the riskier any process becomes. Blockchain technology can allow firms to remove intermediaries so fewer reconciliation errors, automate much of the settlement process and provide a trusted and shared view of permissioned data. Failures to settle on time cost money - not just interest costs, foregone use of money, capital used to support failed settlements and error reporting, not to mention potential regulatory fines and loss of credibility and trust from those customers whose assets are impacted. Similar considerations apply in transfer agency. The prevalence of intermediaries (fund platforms and brokers) operating at an omnibus level changes the role of transfer agents. The increased transparency afforded by blockchain-powered platforms provides the opportunity to disintermediation and create direct linkage between fund managers and distribution platforms.
Blockchain technology has the potential to revolutionise the financial services industry, challenging deeply ingrained processes and structures. By enabling real-time data sharing, automated reconciliation, and near-instant transaction settlements, blockchain removes layers of intermediaries and inefficiencies that have long plagued traditional systems. Imagine a world where:
· settlements happen in minutes, not days, freeing up billions in capital and reducing systemic risks.
· regulatory disclosures and compliance are seamless, with tamper-proof, auditable data shared instantly across stakeholders.
· fund managers and distributors interact directly, eliminating costly intermediaries and enhancing transparency.
But this isn’t just about cutting costs or improving speed - it’s about redefining trust in an industry built on it. With blockchain, financial firms can transform their relationships with customers by providing greater assurance, fewer errors, and faster service. The real question isn’t whether blockchain will disrupt financial services, but whether institutions are ready to embrace this transformation. Those who cling to outdated models may find themselves outpaced by competitors leveraging this technology to redefine efficiency, resilience, and customer experience. Thus, it is of no surprise that financial firms encouraged by compliance teams that strive to have more compliant, efficient and transparent systems and processes have identified blockchain as a key technology to harness. *
*J Fry is deputy chair of TURN
This article first appeared in Digital Bytes (28th of January, 2025), a weekly newsletter by Jonny Fry of Team Blockchain.