Blockchain, the underlying technology of bitcoin, is drawing significant investments from many of the larger wealth and asset management providers. Given a blockchain’s potential to have a significant impact on current processes and systems for this industry, many firms are beginning to dedicate resources to understand and integrate this technology into their businesses.
Blockchain technology — also known as a distributed ledger — has a number of potential use cases within the wealth and asset management life cycle.
A blockchain is a shared record of all transactions and related information for a particular entity, visible by all parties with permission to the record. Distributed ledgers are highly flexible; once implemented, they can be used to remove friction from the client onboarding process, streamline management of model portfolios, speed the clearing and settlement of trades, and ease compliance burdens associated with anti-money laundering (AML) and know your customer.
This eliminates redundant functions, reduces operational expenses and increases opportunities to enhance the client experience. While blockchain technology is unlikely to replace current systems, it may be used to reconcile information across them or enable new infrastructure for new markets and products.
These concepts can also expand to broader wealth and asset management applications, such as rollovers, trusts, estates, insurance and other transactions where assets are moved between parties or contracts are executed. A distributed ledger supports near-real-time transactions to enhance the client experience and reduce costs.
Client profiling and onboarding
Blockchain technology can revolutionize client onboarding for wealth managers. In today’s world, potential clients must provide proof of identification, residency, marital status, sources of wealth, occupation, business interests and political ties. Going through this process can take days or weeks to collect and verify the data.
However, storing a profile on a blockchain/distributed ledger would grant trusted parties access to all or part of the profile based on cryptography. In this case, new relationships would be initiated by profile owners, and the system would inherently enable an audit trail for tracking changes to the chain.
The chain would facilitate many key functions of onboarding such as client and risk profiling, financial planning, anti-money laundering checks and money movement, and it could possibly enhance or replace traditional systems, such as Automated Clearing House (ACH) and Automated Customer Account Transfer (ACAT) since it can enable near-instantaneous transfers of assets between authenticated financial institutions.