By
Temitope Olatunji
April 16th, 2024
The largest British fund houses joined forces to explore the possibility of the bitcoin technology blockchain to improve the sale of securities.
Five main UK’s mutual fund houses have teamed up to investigate whether the blockchain technology can help to reduce trading costs. Aberdeen Asset Management, Schroders Investment Management and Columbia Threadneedle Investments are working on the initiative, the Financial Times reported.
According to sources familiar with the project, Henderson Global and Aviva Investors have also participated in discussions regarding the initiative.
The mutual fund operators, which own over £1 trillion in financial assets, are planning a number of use cases for the distributed ledger, including securities trading. By applying the technology, they intend to speed up the process of assets sale, which now takes several days. Besides, blockchain allows companies to reduce the number of employees.
Still, one of the key benefits of using the technology is the possibility to avoid dealing with intermediaries, what will enable fund houses to minimize costs.
However, some asset managers are still reluctant to adopt the technology because of its connection to bitcoin. In addition to high volatility, the digital currency was earlier used for criminal purposes. Moreover, they are worried about the high cost of developing the blockchain technology.
According to Mr Rajan, CEO of Create Research, it will likely take years until most mutual fund operators adopt the technology. “Asset managers are wary of transformational changes, since they are dealing with other people’s money. Systems failures can cause huge reputational damage,” he said.
Meanwhile, it is not the first time the blockchain is being explored by financial institutions. Banks have already been analyzing the potential of the technology. “Asset managers are probably a year or more behind the banks [when it comes to blockchain],” one consultant told FT.
Earlier this year, JPMorgan partnered with Digital Asset Holdings, the startup run by the bank’s former employee Blythe Masters. The companies are targeted at exploring the applications of the technology behind bitcoin and how it can be used to improve financial transactions settlement.
JPMorgan, along with other major banks, took part in a funding round for the Digital Asset Holdings this month. According to Masters, participation of such investors as JPMorgan, Goldman Sachs and IBM, will help to fuel the worldwide adoption of blockchain-based solutions that will improve the services they offer.
R3, a global consortium exploring how to use the technology in the financial industry, has received support from some of the world’s leading banks, including BNP Paribas, ING and Wells Fargo, what demonstrates the growing interest in the technology.
In January, Bank of America, which also joined the R3 project, filed for 15 patents for blockchain applications. The biggest bank in the United States believes the technology has the potential to disrupt the financial industry. Besides, the bank has another 20 patents that will be filed next.