Blockchain in Securitisation and Credit Treasury
Change on the horizon for structured finance and credit transactions
There is much hype around blockchain in financial services. We took a closer look, in partnership with the World Economic Forum, and believe that this technology indeed has the potential to ‘live-up to the hype’ and reshape financial services profoundly. To be successful, however, it requires careful collaboration from regulators, incumbents, other emerging technologies, and additional stakeholders.
When people hear about blockchain, they usually think: ‘Bitcoin’. This refers to a crypto-currency that is independent from conventional payment systems. It is operated in a ‘permissionless blockchain’ (also ‘public’ blockchain) which contains an intelligent, decentralised verification mechanism. But that is only part of the story.
Despite their absence from the public limelight, ‘permissioned blockchains’ (also referred to as ‘private’ or ‘consortium‘ blockchains) have no less revolutionary potential. Their key characteristics, though, can largely differ from those of a permissionless blockchain – so much that some prefer to give them a different name (e.g. ‘distributed ledger technology‘) to highlight the difference. Moreover, some of the greatest challenges permissionless blockchains are currently struggling with – such as capacity constraints, high energy consumption and slow processing – are non-issues with permissioned blockchains.
One of the most promising use cases of permissioned blockchains is the sector of securitisation and other credit treasury transactions. Simply recall that, as early as decades ago, market participants described the prevailing principle of a securitisation vehicle as that of an ‘autopilot’, believing that personnel should administer the vehicle like a machine according to the set rules. A permissioned blockchain, together with smart contracts, now give the industry the ability to perfect this principle by actually deploying machines (smart contracts) to administer large parts of the securitisations and, at the same time, allowing stakeholders to gain access both to a single source of truth as well as to unchangeable records of all steps taken. In this manner, the securitisation processes can be made far more efficient and reliable, allowing us to rethink the whole securitisation process and eliminate redundancies.
Accordingly, with respect to blockchain, the question for the securitisation and the credit treasury industry is not ‘if’, but ‘when, how, and to what extent?’
The vision of Blockchain in securitisation is that of a backbone being a single source of truth meandering through the whole of the structured transaction:
This backbone provides fundamental enhancements in terms of efficiency, transparency, traceability, reliability, cost-benefit ratio et al. Even several transaction functions and transaction parties may become redundant.
This is not only well sounding in theory but is also the result of a large-scale study we conducted in 2017, ‘Applying blockchain in securitization – Opportunities for reinvention’.
This simple principle becomes more complex on a more detailed level: It is not only one Blockchain but several Blockchain modules (payment layer, asset layer, transaction layer, notes layer, internal/external blockchain) that need to be well combined and interconnected.
The technology provides for various applications that, developed and tailored diligently, have the potential to truly disrupt and reinvent securitisation. But: it is at an early stage, regulation, legal framework, standardisation lag behind.
On the other hand, it is not so much the fully-fledged solution that should be aimed at. In a step-by-step approach partial solutions and pilots can be implemented and executed in order to already realise efficiency gains et al. and/or to be a first mover.
absBLOC – the Block Ledger Oriented Configurator
We know: It is all interesting, even fascinating – but not easy to imagine and/or to digest, in particular if you are not a born IT-technician.
That is why we developed absBLOC. It is a securitisation configurator on a Blockchain with smart contracts et al.
In absBLOC you can design and set-up your own securitisation structure, take on several roles (originator, issuer, investor, …) and make real-life transactions, i.e. such that would be effective and binding immediately had it been a real-deal Blockchain. It is impressive and eye opening! We presented the first public live-demonstration at our event on 17 January 2018.
Click below for contact regarding:
- payment layer
- asset layer
- LACT – Large Assets Credit Treasury – syndication, CLO, CMBS, debt funds, promissory notes, CDS
- GACT – Granular Assets Credit Treasury – supply chain, trade receivables, auto, consumer, RMBS
Event on 17 January 2018
More than 100 securitisation professionals, bankers and service providers came to the Deloitte event “Blockchain in Securitisation and Credit Treasury” in Düsseldorf. There was a huge interest, which led to lively discussions on the panels and in the audience as well as intense communication in the lengthy breaks.
- Gimme some truth – what is blockchain?
- Imagine – a future vision of blockchain in securitisation
- It’s real – what is feasible today? What are the remaining challenges?
Panel: Deloitte, Bundesbank, KfW, Nivaura, Deon Digital
- Come together – how do we build up necessary market standards
Panel: Deloitte, Linklaters, Frankfurt School Blockchain Center, Main Incubator/Commerzbank, DZ Bank
1) Blockchain in securitisation - The reinvention of the structured finance industry?
2) Over the horizon: Blockchain and the future of financial infrastructure - Research from Deloitte & the World Economic Forum
3) Beyond Fintech: A pragmatic assessment of disruptive potential in financial services
4) Banking on a public platform - How blockchain can change banking
5) Blockchain technology for investment management firms - Advancing asset management technology
6) Blockchain in commercial real estate: The future is here - How blockchain- based smart contracts could revolutionize commercial real estate
7) Six Control Principles for Financial Services Blockchains
8) Evolution of blockchain technology - Insights from the GitHub platform
9) Come together - Blockchain consortia in the financial services industry