Buy-side delays blockchain adoption amid regulatory fears

New report suggests asset managers are wary of potential regulatory change to blockchain in the future.

Asset managers are delaying the implementation of blockchain technology due to fears over significant regulatory change, according to a new report.

Authored by consultancy firm Lysis and supported by both the Investment Association and the Alternative Investment Management Association – the report examined the buy-side’s current perceptions of blockchain.

One of the key findings in the report shows that concerns around the potential weight of regulatory change has resulted in buy-side firms reassessing timescales for material adoption of the technology by up to five years.

“There is no general sense that the regulators are hostile to distributed ledger technology: the problem is the weight of change required across multiple regulatory frameworks,” the report said.

The report also suggested widespread concerns amongst asset managers and other industry participants that existing legislation mandates a pre-blockchain model of markets.

An unnamed vendor stated in the report: “The regulatory framework that exists today underpins the existing centralised, trusted and guarded model of securities processing. Unwinding this would take years and cross-jurisdictional cooperation - which is also not very easily achievable.”

The buy-side has generally taken the view that material change in the regulatory position on blockchain is unlikely any time soon, although some among the asset management community have urged regulators to increase their involvement. 

Nevertheless, the benefits of using blockchain technology are widely recognised across the buy-side, with some firms having successfully demonstrated its use with certain functions.

Recently, BNP Paribas Asset Management completed a full end-to-end fund transaction test using blockchain in partnership with Luxembourg Stock Exchange’s Fundsquare, InTech and KMPG Luxembourg.

Fabrice Silberzan, chief operating officer at BNP Paribas Asset Management, described the test at the time as a unique opportunity to shape the future of the asset management industry.

The report encouraged asset managers to take control of their blockchain initiatives, shaping them for maximum value to asset owners.

“The buy-side needs to wake up to the potential of blockchain, clearly prioritise the most relevant and achievable benefits, and drive the developments that deliver those benefits,” said co-authors Dr Ian Hunt, industry consultant and Chris Mills, managing partner at FinTech firm Fimatix.