Fintech provider Broadridge says blockchain has potential to redefine HK capital markets

Adopting blockchain technology can lead to savings of between US$15 billion and US$30 billion per annum by global financial markets, according to Bain & Co

PUBLISHED : Sunday, 28 January, 2018, 5:01pm
UPDATED : Monday, 29 January, 2018, 1:46pm

Fintech provider Broadridge Financial Solutions is developing blockchain-based applications that are expected to benefit its clients in the Asia-Pacific capital markets, including Hong Kong’s by helping them save costs, improve efficiency and reduce risks.

Blockchain, also known as distributed ledger technology, is a big, universally accessible database that keeps a digital record of transactions. It is also the underlying technology of bitcoin and other cryptocurrencies.

Although Hong Kong’s stock market has been buoyant, banks’ return on equity has been declining in recent years. So the adoption of technologies such as blockchain, artificial intelligence and cloud computing, is expected to be at the forefront of the transformation of the capital markets especially in post-trade and back-office activities, which tend to incur the highest operating costs, said David Becker, managing director of Asia-Pacific at Broadridge.

“Blockchain technology really has the potential to redefine financial markets across the region but particularly in the capital markets when it comes to infrastructure,” said Becker. “We see the adoption probably more impactful than the introduction of internet banking.”

A report by US management consulting firm Bain & Co estimated savings to global financial market ecosystems from adopting blockchain technology to be between US$15 billion and US$30 billion per annum.

Blockchain technology really has the potential to redefine financial markets across the region but particularly in the capital markets when it comes to infrastructure
David Becker, managing director of Asia-Pacific at Broadridge

Much of those savings will come from the ability of firms to replace manual, redundant and error-prone processing methods, Becker said.

Broadridge’s blockchain lab in Hyderabad, India, is working on a “next generation” financial platform that could benefit its clients in Hong Kong and across the region. It is also investing in blockchain start-ups, such as Digital Asset Holdings, as well as collaborating with clients such as JPMorgan and Societe Generale in areas such as global proxy voting and bilateral repurchase agreements.

“We are looking at this transition to bring our customers from the use of our core products and service offerings to blockchain-based solutions going forward,” he said.

Many financial market participants have not been quick to embrace blockchain because of the scope of disruption that it may bring to their competitive positions. Yet others who try to preserve the status quo may run the risk of being left behind, analysts said.

Ludovic Subran, deputy chief economist at global insurer and asset manager Allianz, said that Hong Kong was lagging behind in innovation in the financial markets that would have given it a “buffer” as China decelerates.

Hong Kong’s investment growth was forecast to slide from 3.2 per cent in 2017 to 2.5 per cent in 2018 and further to 1.1 per cent in 2019, reflecting increasing risk intolerance than before possibly because of the lack of forward visibility when it comes to the political and policy environment, Subran said.

“We are supposed to see a lot more innovation coming from this side of the world when it comes to financial products especially for the big challenges like climate change, social impact, but also technology and disruption,” Subran said. “The wealth cannot just go into real estate.”

Last year, Hong Kong Exchanges and Clearing sent requests for proposals to vendors for a new platform to manage both clearing house data and post-trade operations for clearing and settlement, which market watchers said was also likely to incorporate blockchain technology.

The move comes as stock exchanges in other places are also working towards distributed ledger technology such as the Australian Securities Exchange, the Japan Exchange Group as well as the Shanghai Stock Exchange.