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Guernsey to host ‘the first ever’ private equity blockchain deployment

The Government of Guernsey recently announced that their island has become the home of "the first ever commercial deployment of blockchain technology for the private equity market."

The Government of Guernsey recently announced that their island has become the home of "the first ever commercial deployment of blockchain technology for the private equity market."

American financial services corporation Northern Trust and technology giant IBM have built a “security-rich blockchain” using the Hyperledger Fabric on the island. The blockchain is designed to provide real-time information and transparency to the private equity fund managers, their investors, as well as allowing regulatory access when required.

“Northern Trust and IBM built a blockchain network to address the needs of investors seeking greater transparency, security and efficiency in the private equity market.”
— – Information and pubic services for the Island of Guernsey

Guernsey is a British crown dependency located in the British Channel Islands in Western Europe. With a current population of approximately 62,723, the island is a protectorate of the UK but is not a formal part of it, nor of the European Union. This ambiguous status has allowed the small state to become a major finance and investment center.

Forty percent of the population is employed in the financial services industry, which represents approximately 55 percent of the island’s total income. With a GDP of approximately US$3.5 billion, this tiny but prosperous economy is internationally known for its light-handed taxes and death duties, making Guernsey famous as a tax haven. In October 2014, the country signed an OECD agreement to automatically exchange some financial account information to limit tax avoidance and evasion.

“Guernsey has been at the forefront of innovation in the financial industry for many years,” states Deputy Gavin St Pier, Guernsey’s Chief Minister. “As a jurisdiction we continually monitor new technologies, support businesses in developing ground-breaking new ideas and provide a supportive environment where products can not only flourish but be first-to-market.”

"Northern Trust has engaged with us as regulators from the start and we are pleased with the level of openness and interaction. This is another example of the Commission’s approach to innovation in the Bailiwick’s financial services industry."
— – Emma Bailey, Director of the Investment Supervision and Policy Division of the Guernsey Financial Services Commission

Founded in Chicago in 1889, Northern Trust Corporation is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. The company has offices in 19 states of the United States and Washington, D.C., and 22 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of December 31, 2016, Northern Trust had assets under custody of US$6.7 trillion, and assets under management of US$942 billion.

Northern Trust is using the new platform to manage the administration of a private equity fund, domiciled in Guernsey, managed by Unigestion, a Switzerland-based asset manager with US$20 billion under management. Northern Trust has offered a wide range of financial services since 1972, and intends to make the solution available to clients on a selective basis.

The new blockchain-based solution was created to deliver a significantly enhanced and far more efficient approach to private equity administration. Private Equity funds are typically long-term investments in underperforming businesses that will be turned into more profitable businesses in the years to come.

“Current legal and administrative processes that support private equity are time consuming and expensive,” explained Peter Cherecwich, the President of Corporate & Institutional Services at Northern Trust. “A lack of transparency and efficient market practices leads to lengthy, duplicative and fragmented investment and administration processes.”

The firm also says that it will explore expanding the new solution into other asset classes and jurisdictions based on success in its initial platform.

"Northern Trust anticipates substantial opportunities to bring improvements to the private equity market by using blockchain technology."
— – Justin Chapman, global head of market advocacy and research at Northern Trust

The platform used is IBM’s deployment of the Hyperledger blockchain and Fabric, which IBM has used for other projects in the past. Financial services, Internet of Things, supply chains, risk management, Healthcare, and digital rights management are some of the sectors IBM has been using Hyperledger blockchains to streamline.

The new blockchain solution allows funds to transfer ownership stakes and be managed, serviced and audited throughout the investment lifecycle on a transparent platform offering “one version of the truth” to participants who gain access via secured means. Initially, Northern Trust will make the solution available to clients on a selective basis.

“Blockchain is an ideal technology to bring innovation to the private equity market, allowing Northern Trust to improve traditional business processes at each stage to deliver greater transparency and efficiency,” said Arvind Krishna, Senior Vice President of Hybrid Cloud and Director of IBM Research. “Based on the Hyperledger Fabric and secured by IBM Blockchain’s high security business network, IBM collaborated with Northern Trust to build a powerful new enterprise solution using blockchain for the private equity industry,” he continued.

Deputy Peter Ferbrache, the President of Guernsey’s Committee for Economic Development, said at the announcement that the blockchain launch represents an exciting opportunity for his island. ‘Blockchain technology will be increasingly used and further developed by financial services providers across the globe in the coming years.”

“For Guernsey to be home to the first commercial venture of its kind in the world is not only very exciting, but is also a testament to the sort of high value innovation government wants to encourage, to help drive economic growth and economic diversification.”
— – Peter Ferbrache, the President of Guernsey’s Committee for Economic Development


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