The leading knowledge platform for the financial technology industry
The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

Blockchain in the Fund management and Audit Industries: Could it Restore Trust?

By Nish Kotecha, Chairman and Co-founder of Finboot, and Bryan Foss, Independent Director and Visiting Professor at Bristol Business School.

Not too long ago, Neil Woodford was still regularly heralded as a “superstar” manager and the “Oracle of Oxford”. How different the story is today.

In mid-October, Neil Woodford announced that his Woodford Investment Management business, set up in 2014 to much fanfare, would be shutting up shop. This followed a highly tumultuous period for the firm, which culminated in Link Fund Solutions, administrator of the Equity Income Fund, taking the decision to wind the shuttered fund down, followed shortly by the resignation of Woodford himself from his other two funds, Woodford Patient Capital Trust and Woodford Income Focus.

The reasons behind Woodford’s downfall have been widely covered, but can largely be attributed to the fact that, in reality, the Equity Income Fund did not do what it said it would, and Woodford ran it essentially unchecked. If investors had been fully aware of the investments being made into unlisted and illiquid stocks, would they have kept their money in?

There can be no doubt that it’s in investors’ best interests that information is readily available so that timely decisions can be taken; dissemination of this information should not be left to the whim of the fund manager who relies on investor trust.

Ultimately, trust requires transparency to validate integrity. Adopting a technology such as blockchain into the reporting and audit framework of a public fund could provide a new, more robust approach to transparency to prevent investors from being caught in a Woodford-esque situation.

For instance, an investor-facing blockchain could be programmed to release updates on a fund’s portfolio at regular intervals without the need for further approvals from the fund manager. The constant release of data in a predefined format would provide evidence of the fund’s status, forcing the manager to operate within the automated reporting schedules and ensure that the fund’s share price is a fair reflection of its valuation.

In a similar way, adopting blockchain in audit and assurance reporting could potentially help to prevent accounting scandals, such as the one seen at Patisserie Valerie earlier this year. Had blockchain been used to underpin the company’s accounting framework, it’s likely that the thousands of fraudulent entries would never have been approved by the distributed ledger technology. The time-stamped links of blocks could reveal any tampering to the recorded transactions, in addition to providing immediate insight into the performance of the company at any given time.

It is the presence of more validated, immutable information that will generate trust in the fund management and audit industries. The choice between investing in public market funds and private market funds should be left to the investor, and public fund managers should be prevented from changing their reporting framework just because it suits them at any given time. Likewise, listed companies should adhere to a fully transparent corporate reporting process that is not susceptible to distortion or interference. In both cases, there is a clear argument for an automated blockchain that can act as a “single source of truth” for the benefit of investors, on whose trust the share price of listed entities partially depends.

Related content


Recorded Webinar: Managing the transaction reporting landscape post Brexit: MiFID II, SFTR, EMIR

The transaction reporting landscape has, for many financial institutions, expanded considerably in size since the end of the UK’s Brexit transition period on 31 December 2020 and the resulting need for double reporting of some transactions to both EU and UK authorities. It has also changed dramatically following the UK government’s failure to reach equivalence...


Quantexa Addresses AML with Contextual Decision Intelligence

London-based data and analytics company Quantexa is addressing the challenge of Anti-Money Laundering (AML) monitoring and investigation with the use of contextual decision intelligence (CDI), a means of enriching internal data with external data and building networks of relationships to create a contextual view of a customer. This approach is aimed at generating meaningful alerts...


Data Management Summit Virtual

The Data Management Summit Virtual brings together the global data management community to share lessons learned, best practice guidance and latest innovations to emerge from the recent crisis. Hear from leading data practitioners and innovators from the UK, US and Europe who will share insights into how they are pushing the boundaries with data to deliver value with flexible but resilient data driven strategies.


What the Global Legal Entity Identifier (LEI) Will Mean for Your Firm

It’s hard to believe that as early as the 2009 Group of 20 summit in Pittsburgh the industry had recognised the need for greater transparency as part of a wider package of reforms aimed at mitigating the systemic risk posed by the OTC derivatives market. That realisation ultimately led to the Dodd Frank Act, and...