Blockchain technology is an emerging fast growing industry, concerning various sectors such as logistics, insurance, payments, etc. And, of course, asset management is primarily concerned, especially in settlement infrastructure domain. Several Fintechs (R3, Liquidshare, Fundsquare) have already overcome the proof-of-concept level and successfully tested their solutions in real conditions. Experts predict that the first industrial implementation could be launched at the end of 2019.
SETL is one of the leading players of blockchain-based post-trade process. It deploys a multi-asset, multi-currency institutional payment and settlement infrastructure. Enabling market participants to move cash and assets directly between each other, it facilitates the immediate and final settlement of market transactions. The SETL system maintains a permissioned distributed ledger of ownership and transaction records, simplifying the post-trade process (matching, settlement, custody, registration, transaction reporting).
Founded in London in 2015, it opened an office in Paris in 2017 and launched the French fund record-keeping platform solution – IZNES – in July of the same year.
More recently, in October 2018, it received approval from the AMF and Banque de France to operate officially as a CSD (Central Securities Depositary). It also received permission from Target2-Securities (T2S, a European initiative to create a pan-European settlement platform) to connect to the European Securities Settlement System.
Company ID Card
- Chairman: Sir David Walker (former chairman of Barclays and Morgan Stanley Int.)
- CEO: Philippe Morel (BCG Capital Markets Practice foundator)
- Number of employees: ≈ 70 (20 in France)
- Funding amount: $39M
- Shareholders: Computershare, Deloitte, S2iEM, Citigroup, Credit Agricole CIB (Feb. 2018)
- Main partnerships and achievements:
o Depositary of trade information in partnership with Cobalt DL for Forex Post Trade Solution (Oct. 2016)
o Test of a blockchain smartcard retail payment system with Deloitte and Metro Bank (Nov. 2016)
o Launch of IZNES (July 2017)
o Building of a clearing and settlement infrastructure for the Australian securities market (2018)
- Main competitors: LiquidShare, FundLinks (Axa IM, BNPP2S), FundsDLT (Ostrum AM, KPMG), LaBChain (CDC, Caceis), R3 (Corda)
OpenCSD platform: the SETL's product designed to compete post-trade incumbents
The OpenCSD platform enables any market participant to commission and run a permissioned registry service for payment, settlement and clearing of cash and other financial instruments. It can be used co-operatively or deployed by a single institution to maintain registers for their own customers.
It comprises four main components:
- A permissioned membership structure, as SETL’s system is founded on a private blockchain
- A range of control functions including clearing, settlement and corporate actions
- Liquidity functionality including collateral and repo facilities
- A secure messaging system which can be used to transmit ISO messages as well as enable bespoke communications between participants in a highly secure environment
SETL thus offers secured, transparent, low-cost and fast-processing new solutions for the maintenance of registers for mutual funds and Private Equity, the settlement of cross-border securities and commercial invoices. It also gives an audit trail for external parties such as regulators and auditors.
Beyond these capabilities, SETL have solved one of the main issue attached to blockchain, namely the scalability, or in other words, processing capacity. For example, Bitcoin’s maximum processing capacity is estimated between 3.3 and 7 per second, Ethereum’s 15 per seconds and Ripple’s 1,500 per second. By comparison, VISA can treat 45,000 transactions per second. But, with its private distributed ledger, SETL’s technology is able to process between 80,000 to 100,000 transactions per second, aiming 100 million wallet addresses – according to its CEO –, which is compatible with post-trade transaction volume.
The consequence is that OpenCSD is energy efficient, which is another matter of blockchain. According to the company, the network of 5 virtual servers using the SETL blockchain may consume “no more energy than a couple of lightbulbs”. By comparison, Ethereum needs 98KWh for each transaction and Bitcoin 778KWh, equivalent to 26 U.S. households’ daily electricity consumption [1].
Finally, SETL indicates that even if it’s a private permissioned blockchain, its platform is interoperable with other chains & banks.
IZNES: the pan-European fund record-keeping platform
Launched in July 2017 in partnership with four French asset managers (OFI AM, Groupama AM, La Financière de l’Échiquier, and Arkea Investment Services, joined subsequently by Lyxor AM and La Banque Postale AM), IZNES is a blockchain-based record-keeping platform for funds powered by SETL.
Compatible with all distribution channels, IZNES has been built to reduce transaction costs, increase transparency, and optimize operational workflow. The platform enables firms to enter into new relationships with investors, manage KYC processes, handle subscription/redemption instructions, and settle transactions and record positions.
A B2B2C and B2C platform
The platform provides every investment process’ actors with a pluggable solution:
- Asset managers: client identification (KYC) and management of associated data – Single entry point for fund distribution in several European countries
- Retail investors: access to a wide range of fund units, to the products database and to a secondary market. Tax module.
- Institutional Investors: access to a wide range of funds and to a secondary market – Complete tax reporting
- Distributors & Business providers: KYC, management facilities by investor portfolio, effective management of distribution fees
- Intermediaries: easy connection to a valuation tool
An operational system
Since its launching 14 more Asset Manager contributors joined IZNES platform, including Amundi [2], representing all together €5,000+ billion of AuM.
After a first test in January 2018 – when OFI AM successfully completed a trial to process fund subscriptions and redemptions with a selected number of clients – the platform became operational in September 2018: OFI AM started managing two of its money market funds on IZNES platform without the need for intermediaries.
SETL’s CEO declared in March 2018 that he expected $800bn to $1.2tr to be recorded on the platform at the end of 2019. If so, it would make SETL bigger than all the cryptocurrency chains put together.
Author: Pascal Buisson - November 2018
[1] https://digiconomist.net/bitcoin-energy-consumption - [2] The other contributors are: Allianz GI, Amundi, Aviva, BNPP AM, Candriam, Ostrum AM, La Française, Sycomore, Lazard Frères Gestion, Pleiade AM, SMA Gestion, BDL Capital Management, Mandarine Gestion, M&G Investments
