Blockchain in capital markets and structured finance

EY Global Blockchain
Summit
San Francisco, CA
April 26, 2017

EY Global Blockchain Summit
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)
Investment($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
development
28 of the top 30 banks engaging in blockchain proofs
of concept
28 banks
Blockchain: approach in capital markets

Research and
development
28 of the top 30 banks are engaging in blockchain
proofs-of-concept
28 banks
Consortia
and industry
groups
Global consortia working on implementing blockchains25

Research and
development
28 of the top 30 banks engaging in blockchain proofs
of concept
28 banks
Consortia
and industry
groups
Global consortia working on implementing blockchains
and distributed ledgers
25
Adoption Number of banks that expect to have blockchain in
commercial production in four years
66%

Capital markets applications
Know your customer and
anti-money laundering
Tokenization 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
obligations
Tranche 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
transfer
1

Data
reconciliation
Asset
creation and
transfer
1
2

Unique
identification
Data
reconciliation
Asset
creation and
transfer
1
2 3

Risk management tool
Unique
identification
Data
reconciliation
Asset
creation and
transfer
1
32

Revenue streams
Unique
identification
Data
reconciliation
Asset
creation and
transfer
1
2 3

Current pain pointsRevenue streams
Unique
identification
Data
reconciliation
Asset
creation and
transfer
1
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
Track and create
new data sets
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
Track and create
new data sets
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
Track and create
new data sets
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
L
A/R
X
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
AAA
AA
A
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
AAA
AA
A
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
AAA
AA
A
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
AAA
AA
A
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
AAA
AA
A
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
AAA
AA
A
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
AAA
AA
A
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

Servicer
Master
servicer
Calculation
agent
Trustee
Bond
administrator
Originator Investor
Administration and reporting processes and data flows
Data flow considerations
PaymentC
Due diligenceA
Reconciliation: (i) data
tape, (ii) delinquency
and default
B
B B B B
Issuer and
underwriter
B
B
C
C
Processes
Payment informationC
Due diligence dataA
(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

Servicer
Master
servicer
Calculation
agent
Trustee Bond admin
Originator Investor
Administration and reporting processes and data flows
Data flow considerations
PaymentC
Due diligenceA
Reconciliation: (i) data
tape, (ii) delinquency
and default
B
B B B B
Issuer and
underwriter
B
B
C
C
Processes
Payment informationC
Due diligence dataA
(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
obreahny.obrien@ey.com
Twitter @Obreahny
LinkedIn: https://www.linkedin.com/in/obreahny

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All Rights Reserved.
EYG no. 04033-173GBL
1705-2288253
ED None
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