A joint report from JPMorgan Chase and consultancy firm Oliver Wyman has urged asset managers to take the initiative to understand and embrace blockchain technology.

“Blockchain can help asset managers tackle many of the challenges they face today: managing data; providing solutions, not just products; and providing continuing service value to clients in a changing competitive landscape”, it said.

The report said that the technology has the potential to reshape market structure, product capabilities and the client experience, ultimately having a lasting influence on the global economic system. In particular, the technology has the potential to support asset managers to overcome the challenges they face due to their traditional business model – slowing of growth in revenues and assets under management (AUM).

“Revenue opportunities will grow out of the improved data sources, greater liquidity and lower frictional costs fostered by blockchain. Asset managers will be able to serve clients in new ways, for example, with real-time reporting or alternate trading strategies”, it said.

The report further outlines four successive waves of deployment for blockchain technology:

• Information sharing (2016-19): Currently, the technology is used internally and between trusted external organizations. Distributed ledger solutions tested in parallel with current workflows as proof of concept
   
• Data solutions (2017-25): The report expects that next year onwards initial pilots may run in parallel with existing processes, until user confidence is high enough to begin migrating volumes
   
• Critical infrastructure (2020-30): In this phase, the technology will be adopted by market participants as main infrastructure for critical functions.
   
• Fully decentralized solutions (uncertain): The final phase will be when blockchain will replace centrally controlled infrastructure with fully decentralized solutions.

It further says that forward-thinking asset managers can differentiate themselves from peers by being at the vanguard of assessing and adopting new blockchain-based capabilities. To that end, the report lays out the action plan for asset managers which includes sharing insights with the appropriate regulatory agencies as guidance, help direct industry R&D resources toward the most critical use cases, and identify and unlock near-term benefits.

The report concluded saying: “It is our belief that distributed ledger technology is not only credible, but creates opportunities for asset managers and has the potential to change the way they do business. Just as it was impossible to predict the impact the internet would have on financial services, it is impossible to know with certainty how markets will look or operate when distributed ledgers and cryptographically secured digital assets are the norm. However, recognizing the impact that FinTech innovation continues to have on the industry, it is pragmatic to be well-informed and organized to unlock economic advantage in an increasingly digital world”.