30 April 2021
INVESTING
FNZ rolls out blockchain solution for SA funds industry
Asset managers meeting the challenges of the Coronavirus crisis BY PIETER HUGO Chief Client & Distribution Officer, Prudential Investment Managers
This development takes the South African market to the forefront of managed fund servicing globally.
Hugh Evans, Managing Director, FNZ South Africa
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NZ, the global wealth management platform, has begun the rollout of FNZ ChainClear, its blockchainbased fund trading and settlement solution, to the South African funds market. The solution – which is being deployed in partnership with FinSwitch, following an agreement reached in May 2020 – will support the entire South African fund management industry and streamline fund operations across trading, settlement and reconciliation activities. It achieves this outcome by replacing slow, file-based batch processing of fund administration activities with a single real-time, automated end-to-end solution. Using blockchain or distributed ledger technology, multiple copies of fund ownership records held by each industry participant and manually synchronised, are replaced with a single ‘source of truth’, securely federated across all participants. This lowers costs and improves access for South African investors, as well as reducing operational delays and errors that give rise to risk. Alongside these benefits, FNZ ChainClear provides an improved digital experience for users, including more powerful tools to dynamically manage business relationships and increase the efficiency of fund distribution. FinSwitch and FNZ are now using blockchain technologies to process hundreds of thousands of trades and other transactions on behalf of 140 South African financial institutions every week, in a parallel processing phase
alongside the existing system. Once fully deployed, this will allow legacy market infrastructure to be retired. “This development takes the South African market to the forefront of managed fund servicing globally,” says Hugh Evans, Managing Director at FNZ South Africa. “It reflects our strong commitment to and conviction in the long-term growth potential of the South African investment industry. Our partnership with FinSwitch is a key part of our strategy in South Africa and we’re delighted to have reached this key milestone in just 10 months.” Jack White, Head of FNZ ChainClear Proposition at FNZ, adds that blockchain and distributed ledger technologies provide a huge opportunity to make the process of fund administration and distribution more efficient and costeffective for all participants. “This marks a significant milestone in the development of FNZ ChainClear, and demonstrates that we are taking that opportunity as we seek to deploy the solution more widely across the markets in which we operate.” According to Nick Baikoff, Managing Director at FinSwitch, the FinSwitch blockchain, powered by FNZ, presents “an opportunity to fundamentally re-architect the existing operational topology of the Collective Investment Scheme industry in a way that brings about dramatic improvements in efficiency and cost reduction for all stakeholders, ensuring that costs will be significantly reduced over time, making investments more affordable to the end investor”.
“FinSwitch and FNZ are now using blockchain technologies to process hundreds of thousands of trades and other transactions on behalf of 140 South African financial institutions every week” 18 www.moneymarketing.co.za
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he Coronavirus pandemic has had a significant impact on our asset management industry, accelerating some existing trends and introducing new challenges to business models and technological capabilities, as well as very interesting opportunities. Although many local managers like Prudential have navigated the crisis very successfully, it has shown us that going forward we will need to be more adaptable than ever. This, while also maintaining a stable company culture and operational base, and delivering consistently excellent client services and investment returns. Among the most evident development over the past year has been an increase in the willingness of investors to use online channels to engage with their advisers or asset managers, educating themselves on their investments. We see this as very positive, as individual investors have taken on more responsibility for their own money and securing their own futures. Asset managers have responded by implementing enhanced online processing, ramped-up electronic client service capabilities and an increasing use of the latest technology, such as AI and chat-bots, to help meet client demand and improve their online experience. Those companies without sufficient resources and skills to exploit new technologies for client engagement and data mining (and deploy all of this while operating largely in a ‘work-from-home’ environment) are being left behind. The Coronavirus crisis also added urgency to the already strong and growing investor demand for offshore investments and the most efficient ways to access them. This, plus the ongoing internationalisation of asset managers, has accelerated local industry globalisation. Although this trend started long before the pandemic, there is greater resiliency among SA asset managers associated with global groups. Prudential has always had M&G Investments as a major shareholder since our founding in 1994, but in more recent years, some larger SA managers have partnered with international firms to access global expertise. Others have focused on building offshore investment capabilities themselves. Competition has become truly global, with scale (the more assets under management the better) an everincreasing necessity in helping reduce operating costs even further. Indeed, in the past year SA has seen many small asset management boutiques closing down and/ or consolidating, having become operationally unviable on reduced asset bases. Today, Prudential is on an accelerated path to becoming more integrated with M&G Investments – both in terms of ownership and operations – recognising the enormous benefits of sharing in even more of their global expertise. Being listed in London, they must grapple with the higher costs and complications of complying with the latest regulations, changing standards for financial advisers, cost pressures from clients, and the development of new global investment opportunities – just to name a few issues – before they reach South African shores. This gives us an indication of the future of our own industry and makes us more prepared for change when it happens. Equally, there are the more obvious advantages of accessing new technologies through enhanced purchasing power, sharing global investment expertise with specialists based offshore, and employing the best governance and compliance practices. Most importantly for investors, however, globalisation can result in better investment results through improved portfolio diversification, risk management and access to new products through cutting-edge technologies.
“Prudential is on an accelerated path to becoming more integrated with M&G Investments”
