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Transforming Southeast Asia's investment banking landscape with blockchain technology

Owen Jelf & Chin Wei Min, Accenture | Dec. 9, 2015
It is in its early days, but the technology that makes Bitcoin work has the potential to transform Southeast Asia's investment banking landscape.

This vendor-written piece has been edited by Executive Networks Media to eliminate product promotion, but readers should note it will likely favour the submitter's approach.

It is in its early days, but the technology that makes Bitcoin work has the potential to transform Southeast Asia's investment banking landscape.

To understand the potential impact of blockchain technology for investment banks and capital markets, we need to understand blockchain.

Blockchain is a disruptive technology platform that uses cryptography and a distributed messaging protocol to create a shared ledger between trading counterparties. The idea is to enable simple transfer of asset ownership or more complex transactions using "smart contracts."

The data on the ledger is pervasive, persistent and creates a reliable "transaction cloud" as this transaction data cannot be lost or corrupted by any of the participants. Simply put, blockchain is a public accounting system. The banks that wrap their heads around the potential of blockchain now, are best poised to be proactive on offerings.

There are many possible applications of blockchain technology in investment banking: From Know-Your-Customer and Anti-Money Laundering data sharing, to trade surveillance, regulatory reporting, collateral management, trading, settlement and clearing. Blockchain has the potential to make trading processes far more efficient, improve regulatory control and eliminate unnecessary intermediaries.

Blockchain will also allow new players to enter the market — from trading to payments. Indeed, we are already witnessing interest in Asia-Pacific. In July, Singapore-based BitX, a cryptocurrency-based Bitcoin startup operating a wallet, several exchanges, and merchant integration services, raised US$4 million in a Series-A round of fundraising.

In the same month, Hong Kong-based startup Bitspark entered Accenture's FinTech Innovation Lab Asia-Pacific. Twelve multinational banks selected the participants and Bitspark, which has a remittance platform that uses bitcoin and blockchain technology to send and receive payments in emerging markets, was one of the companies that captured the banks' attention.

What makes blockchain unusual is that for many markets, the ledger of this accounting system is public. For example, Bitcoin, which runs on blockchain technology, is preserved on millions of personal computers and data warehouses.

No single bank owns the record and every instance of the Bitcoin blockchain holds a total account of all transactions within its market. Crowdsources processing power is used for cryptography that verifies transactions. That means anyone can ensure that a party actually owns the bitcoin pledged in a transaction and we are not reliant on a regulator to monitor it.

Given this transparency, blockchain technology has huge implications for Asia capital markets — or any market where a clear view on who, where, when and why a transaction which has taken place has been questioned. Accenture believes that although the potential of the technology is only just emerging, blockchains will become the critical backbone of the future capital markets infrastructure.

 

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