BC Gateways, a Hong Kong-based company, is about to begin a pilot of its service to share fund managers’ pricing information via blockchain technology.
The pilot is launching this month in Australia with up to four custodian banks, each working with one or two fund houses, including domestic and international names, says Andy Hutchings Broso, co-founder.
He declined to name the banks involved.
The service combines distributed-ledger technology with an app that uses APIs to connect users to the network. The use of immutable DLT is meant to create a single source of truth around pricing and other fund information, thus engendering trust, and helping all players in the value chain reduce both cost and risk.
BC Gateways intends its blockchain to serve as a communications tool, not generate pricing information or execute fund transactions.
Hutchings Broso, a programmer who built and then sold an Aussie tech vendor, APIR Systems, set up BC Gateways last year. His co-founder is Gordon Little, an ex-RBC banker serving as CTO. George Harrap, who founded Bitspark in Hong Kong in 2014 as a remittance service leveraging DLT, is serving as the company’s chief blockchain architect (he remains Bitspark’s CEO).
“My interest is transparency,” Hutchings Broso told DigFin. “Complexity leads to conflict and exploitation. We are removing complexity from information flows.”
Although he believes over time blockchain solutions will give investors a better deal, he’s designed the business to help custodians further automate: “We’re not disrupting the service, just the process.”
He believes fund managers will also embrace such a comms tool if it helps them be more efficient. The industry suffers from declining profitability despite increasing assets under management because of falling revenues and an inability to radically slash costs.
For example, a fund manager must provide daily reports to regulators, registrars, trustees and distributors. Such reports depend on their custodians or fund accountants making timely valuations of a manager’s funds, and then ensuring that information gets shared with the right counterparties.
But many aspects of the process remain manual, relying on screen scraping to source the data, or use incompatible systems whose results need to be reconciled. Wealth managers like private banks need to pull together pricing information from funds, robo advisors, media, and other fintechs. Operational and communication errors happen all the time.
Source of truth
Blockchain can assure everyone of the provenance of a piece of data, and if there’s an error, a new record can be computed via the company’s app. Although BC Gateways’ business model is a work in progress, the basic idea is that a fund manager or custodian can publish their own information on the network for free, but anyone else who wishes to access that data pays a small fee to download it on BC Gateways’ app.
The company also manages permissions, to ensure information is shared only among the appropriate users.
Hutchings Broso says the company is piloting with fund pricing because it’s time-sensitive, and therefore there’s a business case for firms to try it. The company is peopled by Australians, and so they are doing the pilot there, but with an aim to take it global.
Although the company’s managed to get several global custodians interested in trying the service, success could breed its own challenges – if a funds information company like Morningstar or a funds-distribution vendor like Calastone decided communications looked like a juicy extension of their own blockchain ambitions.