Tuesday, March 20,
2018 07.08AM / Coindesk
Northern Trust, a major U.S. custody
bank, is laying the foundations for large-scale adoption of its
blockchain-based platform for private equity funds. In partnership with "Big
Four" accounting firm PwC, the bank introduced new tools Monday to give
private equity fund auditors fast access to data stored on its private
blockchain. Rather than waiting for periodic reports about actions taken by
a fund manager, auditors will get the information almost immediately.
"We've taken and updated a
process that was manual and happens periodically, and we've enabled that to be
done on a daily basis in an automated manner," said Northern Trust
president of corporate and institutional services, Pete Cherecwich, in an
interview with CoinDesk.
While only one Northern Trust client,
the Swiss investment manager Unigestion, is currently using the blockchain
platform that went live last year, Cherecwich positioned the new
capabilities as a way to attract more users. "Our strategy was to continue
with the one customer and to continue to build out from a minimum viable
product to a more robust application," Cherecwich said, adding: "What
we're doing now is finishing off the complete application, then we'll start
rolling out to our existing clients and new clients to the start of next year,
or middle of this year."
The potential user base for the
blockchain platform is formidable, as Northern Trust administers $78 billion in private
equity assets. Its clients in this line of business have included major
players such as Blackstone and the Carlyle Group. The private equities blockchain
platform is now running the first enterprise-grade version of Hyperledger
Fabric, and protected using hardware security modules enabled
by the IBM Blockchain Platform.
The Northern Trust blockchain audit
tools start off by giving auditors access to a specially designed node on the
bank's permissioned blockchain.
By using the software, auditors of a
private equity fund will be able to see read-only files in near real-time when
shares are bought and sold between general partners and limited partners, when
investment firms call for capital promised by investors, and when capital gains
The auditors can either transfer the
required data into their own applications to complete the audit process or
develop their own tools to audit directly from the blockchain. Permission to
audit the various funds will be controlled by smart contract technology for
which Northern Trust says it has a patent pending.
In addition to the work with PwC,
Northern Trust says another audit firm based in the British Crown dependency of
where 20 percent of the bank's private equity assets are domiciled, helped
ensure that all the data an auditor would require from such transactions was
Currently, that data is only disclosed
periodically throughout the year to auditors, who then have to go through the
manual process of auditing the various events. Going forward, Cherecwich says
the cost for these services can be trimmed, as the role human auditors play is
"We as an industry need to keep
our margins and keep going forward," said Cherecwich, continuing: "While
this may look scary because it makes an audit go forward more efficiently, I
think that audit firms should embrace this because it lets them do their jobs
The future of audits?
The immutability and transparency of
blockchain have long proven tempting attributes to innovation-minded
Each of the Big Four accounting firms,
Deloitte, EY, KPMG , and PwC has released a report on the role blockchain will play
in the future of auditing. An early mover to actually adopting
blockchain in accounting is New York-based Libra, which partnered with PwC to
launch its own enterprise blockchain auditing software in 2016. Most recently,
PwC itself has announced a new auditing tool reportedly being used by an unnamed stock exchange and a
digital wallet provider.
A representative of PwC told CoinDesk
the auditing tool created with Northern Trust was custom-built with the bank
and is separate from the technology revealed last week, with potential
opportunities for them to "interface" in the future.
Further explaining how the Northern
Trust platform fits into PwC's larger plans, a partner at the firm, based in
Guernsey, Nick Vermeulen, said in a statement: "Our ability to directly
access distributed ledgers such as the one within the Northern Trust system
will allow us to build upon our own blockchain investments."