BNY to adopt blockchain technology for records in new era for Wall Street

BNY, the world’s biggest bank for safeguarding assets, is embracing blockchain technology for a core feature of its record-keeping systems, as Wall Street races to adapt to a new digital era.

BNY, which has more than $59tn in assets under custody and administration, was set to unveil on Wednesday a digital version of its transfer agency business, which processes trades and keeps ownership records.

While the 242-year-old financial services giant will maintain its physical transfer agent, the creation of a digital arm underscores a broader push on Wall Street to embrace new technology in which shares are issued in tokens and traded on a blockchain instead of traditional means.

Institutions from BlackRock to Franklin Templeton have rolled out tokenised money market funds in recent years — vehicles that hold short-dated debt and cash — while large exchanges have also shown signs of embracing blockchain technology, blurring the lines between traditional finance and a digital-asset ecosystem.

Asset managers hope blockchain technology can reduce the time required to settle transactions as well as bridge the system to operate 24 hours a day seven days a week.

The latest development “has the potential to transform the processing and the infrastructure of how financial markets work”, said Carolyn Weinberg, chief product and innovation officer at BNY.

“We think of BNY as modernising a function that sits behind every single fund transaction by bringing the books and records on-chain,” she added.

For BNY, whose transfer agent services roughly $8.6tn in assets across 7.6mn accounts, establishing market architecture on the blockchain provides a single universal record for share ownership and other functions without the need for multiple intermediaries.

Much of the progress in the wider push for tokenisation is still in the pilot stage as companies test the technology. The path has become clearer in recent years as regulators in the US have issued guidance on how the law applies to digital representations of assets.

Edinburgh-based Baillie Gifford, a BNY client with £197bn in assets under management, is utilising the group’s new digital transfer agent for the first “fully native” UK-regulated tokenised fund, while BlackRock and BNY’s Dreyfus money market fund and cash management business are similarly expected to use it for their own soon-to-launch funds.

“What we have in the blockchain is a shared source of record-keeping between the participants,” said Theo Golden, head of digital assets at Baillie Gifford. “We’ve all collectively gone, ‘We agree that this is the source of truth when people are dealing with the asset that this is monitoring.’”

In an interview with the FT prior to the announcement of BNY’s new transfer agent, Franklin Templeton’s chief executive Jenny Johnson said: “The challenge that most financial services firms [face] is we all spend a tonne of money reconciling data between systems, and then we have to go reconcile with our counterparty.”

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“The beauty of blockchain is there’s only one source of truth. It’s updated immediately,” she added.

Still, industry participants predicted that — despite significant efforts to develop on-chain market infrastructure — physical plumbing would remain in place for years to come. Blockchain technology can also bring new cyber security risks, including potential hacks of the embedded code in “smart contracts” and “bridges” that connect one chain to another.

“We fully recognise you’ve got trillions and trillions of dollars’ worth of funds that . . . will continue to exist on traditional rails,” said Emily Portney, BNY’s global head of asset servicing, the bank’s largest business. But “we want to build, and help write the script, and be the rails of the future”.