blockchain in capital markets and structured finance

EY Global Blockchain Summit

San Francisco, CA

April 26, 2017


Blockchain in capital markets and structured finance


178.42

490.48 497.33

46.93

0

100

200

300

400

500

600

2014 2015 2016 2017 (YTD)

Investm

ent

($m

)

$1b investment

884.73

185.07

95.99

20.78

14.5

6.5

4.29

1.3

0 200 400 600 800 1000

U.S. and Canada

Europe

Asia

Latin America

Middle East

Other

Africa

South America

Investment ($millions)

North America focus

Financial Services,

42%

Targeting financial services

"RegTech" (Regulation Technology) Exchange

Financial Services Infrastructure

Mining Payment processor

Universal Venture Capital

Wallet Other

Source: Coindesk.com, "Blockchain Venture Capital,"

http://www.coindesk.com/bitcoin-venture-capital

Blockchain: investments


Research and

development28 of the top 30 banks engaging in blockchain proofs

of concept28 banks

Blockchain: approach in capital markets


Research and

development28 of the top 30 banks are engaging in blockchain

proofs-of-concept28 banks

Consortia

and industry

groups

Global consortia working on implementing blockchains25



Research and

development28 of the top 30 banks engaging in blockchain proofs

of concept28 banks

Consortia

and industry

groups

Global consortia working on implementing blockchains

and distributed ledgers25

Adoption Number of banks that expect to have blockchain in

commercial production in four years66%



Capital markets applications

Know your customer and

anti-money launderingTokenization Securitization

Asset documentation Derivative transactionsAsset servicing

Managing customer

identities throughout

the organization

Digitizing and tokenizing

traditionally physical

assets

Securitizing tokenized

assets for streamlined

reconciliation

Documenting the

ownership and rights

of assets

Removing the need for

reconciliation through

distributed identities

Determining ownership

of complex derivative

instruments

Structured finance applications

Syndicated loans CMOs CDOs

Collateralized bond

obligationsTranche documentationCredit default swaps

Simplified syndication

process so all parties

have full visibility into

loan structure and

cash flows

Readily available

mortgage borrower credit

details, even when in

pooled vehicle

Same benefits as

commercial mortgage

organizations, but

include other debt

obligations, such as car

loans and bonds

Full clarity and

traceability of each

underlying bond within

a tranche

Increased transparency

of contract terms and

details

All tranches of securities

“sliced” by smart

contracts and slices

automatically are

documented by profile,

e.g., risk, class, rating

Blockchain: applications


Blockchain: attributes

Asset creation and transfer1


Data reconciliation



2


Unique identification

Data reconciliation



2 3


Risk management tool


Data reconciliation



32


Revenue streams



Data reconciliation



2 3


Current pain points Revenue streams



Data reconciliation



2 3


Blockchain-enabled securitization life cycle tracking


I. Loans

Tokenize data sets

Loan securitization: asset creation

A

B

D

C

E

F


II. Financial structuring

C1

C2

C3

F1

F2

F3

I. Loans

A

B

D

C

E

F


Track and create new data sets

A

B

D

C

E

F



C1

C2

C3

F1

F2

F3

I. Loans

A

B

D

C

E

F



Accounts

receivable X

Accounts

receivable Y

Accounts

receivable Z

A

B

D

C

E

F



C1

C2

C3

F1

F2

F3

I. Loans

A

B

D

C

E

F



Accounts

receivable X

Accounts

receivable Y

Accounts

receivable Z

A/R

X

M

L

A

B

D

C

E

F



C1

C2

C3

F1

F2

F3

I. Loans



Accounts

receivable X

Accounts

receivable Y

Accounts

receivable Z

A/R

X

M

L

Security A

Security B

A

B

D

C

E

F

A

B

D

C

E

F



C1

C2

C3

F1

F2

F3

I. Loans

A

B

D

C

E

F


Accounts

receivable X

Accounts

receivable Y

Accounts

receivable Z

A/R

X

M

L

Security A

Security B

Full visibility of underlying data sets

Investors

Security B

C3 F3

LA/R

XM

III. Unbundled view

A

B

D

C

E

F



C1

C2

C3

F1

F2

F3

A/R X

A/R Y

A/R Z

M

LX

Security A

Security B

AAAAAA

BBB

Regulators

Due diligence

Issuing bank

Loan and

borrower

data

1

Due diligence

1

Loan securitization: pain points

I. Loans

A

B

D

C

E

F

A

B

D

C

E

F



C1

C2

C3

F1

F2

F3

A/R X

A/R Y

A/R Z

M

LX

Security A

Security B

AAAAAA

BBB

Regulators

Due diligence

Issuing bank

Loan and

borrower

data

1

Due diligence

1


I. Loans

A

B

D

C

E

F

2

Investors

2

Reporting2

A

B

D

C

E

F



C1

C2

C3

F1

F2

F3

A/R X

A/R Y

A/R Z

M

LX

Security A

Security B

AAAAAA

BBB

Regulators

Due diligence

Issuing bank

Loan and

borrower

data

1

Due diligence

1


I. Loans

A

B

D

C

E

F

2

Investors

2

Reporting2

Investors

3 3

Liability exposure

3

Security

B

C3 F3

LX M

III. Unbundled view

A

B

D

C

E

F



C1

C2

C3

F1

F2

F3

A/R X

A/R Y

A/R Z

M

LX

Security A

Security B

AAAAAA

BBB

Regulators

Due diligence

Issuing bank

Loan and

borrower

data

Loan securitization: investor value approach

I. Loans

A

B

D

C

E

F Investors

Security

B

C3 F3

LX M

III. Unbundled view

Investors

► Risk models

A

B

D

C

E

F



C1

C2

C3

F1

F2

F3

A/R X

A/R Y

A/R Z

M

LX

Security A

Security B

AAAAAA

BBB

Regulators

Due diligence

Issuing bank

Loan and

borrower

data


I. Loans

A

B

D

C

E

F Investors

Security

B

C3 F3

LX M

III. Unbundled view

Investors

► Risk models

► ReconciliationsA

B

D

C

E

F



C1

C2

C3

F1

F2

F3

A/R X

A/R Y

A/R Z

M

LX

Security A

Security B

AAAAAA

BBB

Regulators

Due diligence

Issuing bank

Loan and

borrower

data


I. Loans

A

B

D

C

E

F Investors

Security

B

C3 F3

LX M

III. Unbundled view

Investors

► Risk models

► Reconciliations

► Improved reporting

A

B

D

C

E

F



C1

C2

C3

F1

F2

F3

A/R X

A/R Y

A/R Z

M

LX

Security A

Security B

AAAAAA

BBB

Regulators

Due diligence

Issuing bank

Loan and

borrower

data


I. Loans

A

B

D

C

E

F Investors

Security

B

C3 F3

LX M

III. Unbundled view

Investors

► Risk models

► Reconciliations

► Improved reporting

► Fraud resolution

A

B

D

C

E

F


Asset scan: uncovering hidden assets


ServicerMaster

servicer

Calculation

agentTrustee

Bond

administrator

Originator Investor

Administration and reporting processes and data flows

Data flow considerations

Payment C

Due diligenceA

Reconciliation: (i) data

tape, (ii) delinquency

and default

B

B B B B

Issuer and

underwriter

B

B

C

C

Processes

Payment information C

Due diligence data A

(i) Data tape, (ii)

original loan

information

B

A

B

A

C C

*

*Indicates later-stage investment and certain asset classes

Affiliates

Loan securitization: servicing function Current state


ServicerMaster

servicer

Calculation

agentTrustee Bond admin

Originator Investor

Administration and reporting processes and data flows

Data flow considerations

Payment C

Due diligenceA

Reconciliation: (i) data

tape, (ii) delinquency

and default

B

B B B B

Issuer and

underwriter

B

B

C

C

Processes

Payment information C

Due diligence data A

(i) Data tape, (ii)

original loan

information

B

A

B

A

C C

*Indicates later-stage investment and certain asset classes

Affiliates

Loan securitization: servicing function Future state

*

X X

X X

X X X X

X X

XX


Blockchain data marketplace


I. Loans

A

B

C

E

F D

A

B

C

D

E

F Regulators

Other

participants

II. Blockchain-enabled marketplace

1

Upload data sets1

How it works

1

1

Issuer Credit card

company

Blockchain-enabled marketplace

A

B

D

C

E

F


I. Loans

A

B

C

E

F D

A

B

C

D

E

F Regulators

Other

participants


1

Upload data sets1

How it works

1

1

Issuer Credit card

company


2

Dynamic identity creation

2

F

Loan position

Borrower position

A

B

D

C

E

F


I. Loans

A

B

C

E

F D

A

B

C

D

E

F Regulators

Other

participants


1

Upload data sets1

How it works

1

1

Issuer Credit card

company


F

Loan position

Borrower position

2

Dynamic identity creation

2

Regulators

Due diligence

Issuing bank

Investors

III. Reporting

3

Rating agency

3

Autonomous position reporting

3

A

B

D

C

E

F


Key contact

Obreahny O’Brien

+1 212 360 9523

[email protected]

Twitter @Obreahny

LinkedIn: https://www.linkedin.com/in/obreahny

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