Systemic risk in the superannuation system likely doesn’t stem from funds themselves, but from their service provider relationships. Regulators need to be thinking harder about where and how it arises – something they’re not necessarily well set up to do.
Big asset owners and managers are embracing the private markets as one avenue for growth, but the complexity that brings to portfolios means they also need to get a better view of what might be decades of siloed information.
Backoffice business builds blockchain bible
Global financial market infrastructure firm Depository Trust & Clearing Corporation (DTCC) has laid out a chapter-and-verse governance model for the nascent blockchain universe.
In a just-published white paper produced with consultancy giant, Accenture, DTCC establishes eight commandments for running ‘permissioned’ blockchains – also known as distributed ledger technology (DLT).
Unlike the headline-grabbing blockchain antics of cryptocurrency stars such as bitcoin, permissioned DLT networks limit members to known entities involved in a common supply chain. Permissioned DLT systems also dispense with the energy-intensive ‘mining’ process that props up most crypto-currencies.
“Early believers in DLT saw it as way to conduct transactions without banks or financial institutions, but the need for sound, controlled markets has overwhelmed that initial view,” the DTCC paper says. “The immaturity of the technology, and its nascent ecosystem of vendors and tools, resulted in challenges to meet the expected performance, scale and cost efficiencies.”
But as permissioned DLT networks continue to sprout across the financial services industry, the report says providers need strong “oversight and governance” if blockchain is to fulfill its potential.
“With properly implemented and operated governance, DLT can provide additional safety and soundness for the financial markets and the opportunity to enhance the ‘trust but verify’ models for the investing public,” the paper says.
The DTCC/Accenture blockchain quality assurance model covers:
- governance – including steering committee, functional working group, technical working group and change committee functions;
- participant lifecycle – rules to manage network membership;
- runtime operations – day-to-day functionality such as monitoring, reporting and support;
- data governance – access, privacy restrictions etc;
- third-party management – oversight of external providers;
- platform management – application development;
- infrastructure – core network functions; and,
- legal and finance – addressing risks such as vendor and licensing, patent, open source and cross-border.
In a release, Robert Palatnick, DTCC chief technology architect, said: “The financial services industry has seen unprecedented growth in data and processing power over the last 50 years. “Distributed ledger technology, with its built-in consistency, security and privacy, holds great promise to transform the digital landscape, but DLT’s full potential will only be realized with the implementation of a strong and transparent governance model.”
The topic is not just theoretical, however. Blockchain has already been set loose in the Australasian financial markets after the Calastone DLT switched on this May. FNZ may also import a fund blockchain from the UK to Australasia while the ASX is well down the path of swapping the CHESS settlement system to a DLT service.
Later this year, Trustees Executors also plans to introduce a blockchain registry system built on technology supplied by Australian firm, Grow Super.
– David Chaplin, Investment News NZ
