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Arrival of blockchain pushed forward

Blockchain technology could have a direct impact on SMSFs in as little as two years as the Australian Securities Exchange (ASX) develops its blockchain trading platform and Treasury undertakes a review, with switched-on trustees predicted to be early adopters.

“I think that with the research and development currently being undertaken by regulators and banks, blockchain will not only revolutionise the financial services industry, but have far-reaching implications for our economy in general,” SuperAuditors director Shelley Banton told selfmanagedsuper.

“The five-year window I [predicted in March for blockchain’s arrival in our industry] is now down to two.”

Banton said the ASX would be a key driving force behind the earlier arrival of the technology as it looked to roll out a parallel blockchain trading platform within six to 12 months.

“Depending on how that goes, it may replace CHESS (Clearing House Electronic Sub-register System) entirely within 18 months,” she said.

“With over 80 per cent of SMSFs in shares and cash, this will have a direct impact on SMSFs within the next two years.

“The banks are involved with an international consortium of banks that are currently simulating equity trades using blockchain technology, and the Commonwealth Bank of Australia has said it will be delivering a distributed ledger to market in the next 12 months.”

She said she believed SMSFs would adopt blockchain technology before the rest of the market.

“I think there’ll be a transition period where switched-on SMSF trustees will take it up first [using the ASX blockchain platform, for example],” she explained.

“The real question is will advisers, accountants and fund managers be ready for it?

“We don’t know what the architecture will look like so it’s difficult to say how much system restructuring will need to be done to accommodate blockchain transactions.

“I should imagine that there’s a lot of discussion going on behind SMSF administration doors as to how encrypted transactions that are identified by a public key need to make their way seamlessly into existing platforms.”

Commenting on blockchain’s effect on SMSF auditors, she said there was no doubt auditors would be seeing permissioned ledgers in the future if the SMSF trustee did not use a platform.

“A permissioned ledger is blockchain with restricted membership, which will be used by regulated trading markets,” she explained.

“This will mean SMSF auditors will need to ask for different information to undertake the audit.

“In the end, we’ll all be forced to adapt as banks, stock exchanges, fund managers, et cetera move across to using the blockchain due to the cost saving and efficiencies that the technology brings, just like we have with Excel spreadsheets.

“Given the far-reaching implications for how blockchain technology can be used, in the future we may end up buying property or a loaf of bread using the blockchain.”

Last week, Sydney Stock Exchange and Bit Trade Labs revealed the establishment of a joint venture to develop a blockchain-based equities market settlement and registration system, which was intended to be made available to other markets also.

Earlier this month, the CSIRO’s Data61 and Treasury announced it would undertake a detailed review to fully examine the far-reaching potential and implications for government and industry of the adoption of blockchain.

Data61, in collaboration with government agencies including Treasury, will conduct the study over the next nine months to ascertain what the new technology’s potential is for both government and industry, including its uptake and distributed ledgers, as well as future possible scenarios in Australia.

GBST Holdings this month released the findings of its initial study into blockchain technologies for international capital market participants.

The “Four Scenarios for Blockchain in Capital Markets” discussion paper, developed in conjunction with Data61, identified the importance of distributed ledger technology and smart contracts as they potentially reduced inefficiencies and costs, as well as created new market infrastructure capable of challenging traditional capital market operators.

The paper noted market participants would need internal accounting and client servicing systems in the medium term, possibly acting as a firm’s “digital wallet”, but it was longer term where the study acknowledged more focus on the peer-to-peer transacting model would have the potential to reshape participants’ operations.

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