The Irish Funds Industry Association (Irish Funds) recently announced a new regulatory reporting blockchain project, in collaboration with Deloitte, and industry participants including Northern Trust and State Street.
Irish Funds states that the project will result in the design and development of a proof of concept platform leveraging blockchain and smart contract technology, focusing on regulatory reporting, “accessible to the reporting entity as well as a regulator.”
“This proof of concept will test the application of blockchain for enhanced compliance, increasing transparency and to determine the cost benefit of the technology.”
— – Irish Funds Industry Association
Founded in 1991, Irish Funds is a representative body for the investment fund industry in Ireland. As of last September, there were 6,343 Irish domiciled funds with over €1.98 trillion in net assets. 18 of the top 20 global asset managers have Irish domiciled funds. The country offers low corporate tax rates, and managers access to the European Union.
Every sector of the investment funds industry is represented by the Funds membership; fund managers and promoters, custodians, fund administrators, transfer agents, professional advisory firms and specialist service providers associated with collective investment schemes.
Fund managers represented by the Funds include BlackRock, Goldman Sachs, J.P Morgan, and Morgan Stanley, to name a few. Bank of America Merril Lynch, BNP Paribas, BNY Melon, Citi, Duetsche Bank, HSBC, and Societe Generale, among others, are represented fund Administrators.
All of the Big Four professional services networks are represented, EY, KPMG, PwC, and Deloitte. These are the largest professional services networks offering audit, assurance, tax, consulting, advisory, actuarial, corporate finance and legal services.
Irish Funds represents this broad and diverse group as a member of the European Fund and Asset Management Association (EFAMA). In cooperation with European partners, the Funds actively engage in policy discussions at the EU level. The representative is also a member of the International Investment Funds Association (IIFA), which brings together representatives from forty one national and regional fund associations across the globe.
“Through the development of industry policy, guidance papers, technical briefings and the output of our working groups, we assist in the defining of practice across a range of complex areas such as compliance, valuation, accounting, share dealing and registration.”
— – Irish Funds Industry Association
The new project will focus on ‘Resident Investment Fund Returns (Money Market & Investment Funds Returns Reporting- MMIF) regulation. The Central Bank of Ireland (CBI) states that all Irish Domiciled funds classified as Investment Funds, which have completed at least one non zero monthly NAV return in a calendar quarter, are required to complete the MMIF return on a quarterly basis.
The return came into effect in 2014 and applies to, “Undertakings for Collective Investment in Transferable Securities” (UCITS) and hedge funds based in Ireland. A UCITS is a mutual fund based in the European Union, and can be sold to any EU investor under a harmonized regulatory regime.
“The MMIF return is intended to give a comprehensive overview of all transactions and positions of a Fund vis-á-vis residents and non-residents,” states the CBI. Funds can be fined up to €200,000 for failure to comply with MMIF Reporting requirements, or for failing to submit fund information accurately and on time.
A report by global communications provider RR Donnelley states that while the responsibility for MMIF reporting is currently with each fund, in practice fund administrators have been submitting the report on behalf of the fund. “The timeline for MMIF reporting has been tight and the resources required to complete the submission process have been substantial,” the report reads. “The MMIF reporting process has proved challenging for fund administrators.”
“Regulatory reporting is a key obligation for our members and an area of priority focus for the Central Bank of Ireland in 2017. This project and the development of the proof of concept with Deloitte will benefit industry, the regulator and demonstrates how Ireland is actively embracing FinTech.”
— – Pat Lardner, Irish Funds CEO
The project is being developed at Deloitte’s new EMEA blockchain Lab, in Dublin’s “Silicon Docks” district. The lab opened on January 23 and serves Europe, the Middle East and Africa. There is an existing team of more than 25 blockchain developers and designers, and the firm plans to add 25 more by year end. The firm’s global blockchain team consists of more than 800 professionals across 20 countries.
The Irish team focuses on developing “concept to product.” It develops strategic blockchain capabilities and proof-of-concepts which are further developed into functioning prototypes and ready-to-integrate solutions for Deloitte clients.
Deloitte has so far developed more than 30 blockchain-related prototypes for various use cases, including digital identity, digital banking, cross-border payments, trade finance, and loyalty and rewards solutions. Much of the firm’s efforts have also been for the investment management and insurance sectors. Last April, the firm completed a joint blockchain based proof-of-concept trial with Bank of Ireland.
Joining Deloitte in the new venture is Northern Trust, an American financial services company founded in 1889 and headquartered in Chicago, Illinois. With 85 offices, including 20 international offices including Dublin, and 16,500 employees globally, the firm provides investment management, asset and fund administration, fiduciary and banking services. At the end of last year, the company had $8.5 trillion in assets under custody and administration, and $942 billion in assets under management.
According to Pete Cherecwich, President of Global Funds Services, Northern Trust started investigating how blockchain technology over two years ago, while completing a proof-of-concept as part of the R3 CEV Banking Consortium. “We have since been working to understand how the technology may affect cash and securities transactional movements, asset servicing and ledger distribution,” Cherecwich states.
The final named partner in the project is State Street Corporation. Founded in 1792, State Street is a leading provider of financial services to institutional investors, operating in more than 100 geographic markets worldwide. The firm reported $27 trillion in assets under custody and administration and $2 trillion in assets under management as of March 31, 2016. It is reportedly the third largest asset manager in the world.
“We are actively supporting several blockchain and blockchain-inspired initiatives both internally and as part of a handful of consortia of the world’s biggest banks and technology companies.”
— – State Street Corporation
This new project is far from the first to tackle regulatory reporting. Deloitte already developed a proof-of-concept for this purpose. “Distributed Ledger Technology offers a world of new opportunities when it comes to trade, post trade and related regulatory reporting,” explains Laurent Collet, Partner at Deloitte Luxembourg. “The quality and transparency of reported transaction data will increase and the reporting costs will be substantially reduced.”