Despite the potential for new technologies to improve operational efficiencies, lower costs, and better serve clients – which has increased interest among asset managers – the majority of blockchain applications used by asset managers remain in their infancy. In this report, the Global Blockchain and Business Council and law firm Norton Rose Fulbright consider some of the legal and regulatory questions that buy-side managers, particularly asset managers, might face when considering implementing blockchain.
On the question of investments, buy-side firms will have to consider to what extent they can satisfy their fiduciary duties by investing in cryptoassets; if investment in cryptoassets is permitted by applicable regulations, they must consider how to appropriately diversify risk. Again, this raises many non-legal questions such as whether such assets have sufficiently clear and measurable value, and how volatile and liquid they are. However, these issues are relevant to that legal duty, as well as to regulatory requirements. It also raises some practical questions for an asset manager, such as how to buy and sell these assets, hold them, and exercise any rights and discharge any obligations that attach to them. The buy-side will need to understand the evolving market infrastructure and what service providers can offer in order to properly discharge their duties and comply with regulatory requirements, such as best execution.
The report covers regulation for discretionary management and fund management, and supporting services such as crypto custody and settlement.