There has been plenty of hubbub about blockchain technology thus far in 2016, but a lot of the commentary has revolved around two things: what it actually is, and what sweeping changes to the landscape we can expect from it at some indeterminate point in the future.

Both areas are undoubtedly consequential, but they leave some questions unanswered: what about the fund industry specifically—will blockchains overhaul every industry norm? Or will it meld in as sort of a tech upgrade? And while you wait for a radical future to turn up on your doorstep, what can you actually do today to usher in this technology and get your company on the best footing? Read on for more on these questions.

Area: order processing
What blockchains could bring: efficiency

One of blockchain technology's most promising applications is the smart contract. Smart contracts use contractual logic that has been coded, meaning that any contract can be executed by an automated process. Whereas currently a fund company relies on personnel to check and validate investors' orders, smart contracts could take over this chore with a lower margin of error and higher efficiency. Fund companies would be freer to focus on the terms of the contract itself, with the administrative tasks being reduced to ensuring that it's programmed correctly, which will save costs.

Area: investor registers
What blockchains could bring: efficiency

Communication between fund accountants, custodians, and asset managers is a daily beast that consumes time and energy. Naturally, the march of technology has been making it easier overall, but blockchain technology would allow the three entities to, for example, share a digital ledger containing every investor's information. It would act as a central and searchable place where everybody accessing it is on the same page, and is looking at verified and error-free information. Thumbs up all around.

Area: transfer agent functions
What blockchains could bring: uh... efficiency again

Transfer agents have a heavy workload: they keep records of investors' ongoing account balances and transactions; they process investor mailings; they issue or cancel certificates; they handle problems that arise with those certificates, for example when they're stolen or lost. Enter the digital ledger. Many of these actions could be recorded and verified on a blockchain, speeding up the processes, centralising them, and increasing their security and trustworthiness.

Area: securities and cash
What blockchains could bring: don't make me say it again

Once securities and cash held by the fund are processed using a blockchain, fund accountants could query the ledger to compute the fund NAV and to produce financial statements. This will be far easier than the existing system of compiling data from different silos, verifying it (sometimes via an external provider), and creating or maintaining the tool that assists with all these tasks.

Area: audit
What blockchains could bring: fine—efficiency

In an audit context, blockchain technology would allow a cryptographic audit trail that is secure and searchable. The digital ledger cannot be altered after its transactions are verified, meaning that everything will be there for everyone who has access to it. The challenges will no longer be data storage or making unstructured data structured, but rather developing a tool that knows what to search for within the ledger, keeping certain criteria—for example, certain regulatory requirements—in mind. Gone would be the days of clunky data silos and administrative errors setting you back days, weeks, months.

Area: new business offerings
What blockchains could bring: eff—actually, no, just a lot of new business opportunities

All at once, a fund that has truly integrated blockchain technology into its processes and procedures will shed administrative weight, increase the quality of its data management many times over, and open up new sources of business. A non-exhaustive list of these new sources might include smart contract coding for clients, administration of the fund keys, or distributed ledger hosting. As we begin to know this blockchain landscape better, more opportunities are sure to be discovered.

How to make the future happen today

Thinking that blockchain technology will merely be a tech upgrade would be dangerously underestimating its importance. Indeed, we think a true change of paradigm is on the horizon for the fund industry. Here is a checklist of what you should do now, if you haven't begun already:

  • Change your attitude (if need be). Lots of blockchain articles recently have been very entertaining, with far-reaching applications that may or may not come true. As we've seen with digital revolutions in the past, those who wait and see end up doing nothing but waiting and seeing... seeing the opportunities seized by others.
  • Assess potential impacts on your business. The above list of areas that could be affected by blockchain technology is far from exhaustive, nor is it specific to your business. Have a look at what areas could or should be transformed, and in what order, and how.
  • Conduct operational check-ups. Once you assess the areas of your business where a blockchain might be useful, start testing those areas. Inform yourself by running numbers with projected efficiency savings, changes to business roles, and other features of a post-blockchain world.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.