Blockchain & Smart Contracts: let us focus on the real problems

& Smart Contracts make sure the same information is shared by different players in real-time and cannot be modified without the consent of all, as simple as that.

When it comes to the Capital Market, most articles on this topic explore how to use this to solve the problem of real-time reconciliations between , counterparts, CSD, CCP…

Is this THE problem that banks need to solve today? Will it bring profitability back to their Capital Market business?

Imposing a standard in Blockchain & Smart Contracts to the market, obtaining regulators’ blessing and deploying the technology within the ecosystem will take years (anywhere between 5 to 10 years). Remember the Target2-Securities? It started in 2008 and was supposed to be implemented in 2015 in France, Germany, Italy and Spain. 8 years later and still working on it :-).

Aren’t there more pressing problems?

  • Banks trading margins are shrinking.
  • Their trading infrastructure is mostly outdated, complex, very expensive to maintain and reduces competitiveness.
  • Executives are asked to lower their spending on operations and technology.

Don’t these problems look familiar to you?

This is how the trading infrastructure in the Capital Market looks (this is not representative of all systems and locations):

  • High support costs due to amount of inter-connectivity
  • High failure/error rate
  • End to end test very difficult
  • Cost of upgrade is very high
  • Cost of ownership high due to complex connectivity to external environments

So let us take a step back and look at one of the major challenges in the Capital Market:

Reduce the cost of operations and technology

The idea of having one system that does it all “all singing, all dancing” to reduce the cost of infrastructure is a utopia. And whatever solution we have out there, experience showed that its TCO is prohibitive.

So what to do?

How about shifting the focus of the Blockchain and Smart Contracts technology to solve this particular problem?

Let us call it the Internal Blockchain Technology Solution 😉

Imagine this scenario:

A trade event is to be recorded. In real-time, these departments are made aware of the event: Risk, Collateral, Treasury, Back-Office, Finance, Compliance, Credit, Audit…

If the event creates an issue within any of these departments, then the corresponding department rejects it and the event is cancelled or put on hold in real-time.

Isn’t it what all these expensive, heterogeneous and complex interfaces between the systems of the trading infrastructure are trying to achieve?

Using the Blockchain & Smart Contracts internally has huge benefits for financial institutions:

  • No need to wait for one global standard
  • The bank can partner with its vendors of choice
  • No need for regulators to approve
  • The cost of maintaining complex interfaces between systems is reduced
  • The cost of internal reconciliations is reduced

Vendors in this market need to focus on developing Smart Contracts representing trades and their events and creating a middleware that uses this Blockchain technology to sync different systems.

Combining the above with a Standard Target Operating Model for post-trades and outsourcing to the Cloud (Utility) will allow banks to dramatically reduce their infrastructure cost.

This can be done TODAY. No need to wait 10 years until a standard emerges and regulators give their sign-off.

And I can help!

[linkedinbadge URL=”” connections=”off” mode=”icon” liname=”Gérard Rafie”] is Strategic Consultant – Capital Market & Treasury