Investment Operations

Northern Trust Claims Blockchain Breakthrough for Securities Services

Digital Asset Custody and Servicing

Northern Trust said today that it has pioneered the capability to deploy legal clauses as smart contracts directly from a digital legal agreement onto its private equity blockchain. The industry-first technology application on a blockchain can be deployed to other platforms, said the bank, with potential for broad use in generating digital documents and applying conditions beyond legal agreements.

Northern Trust’s application has leveraged software developed by legal-technology startup Avvoka which enables participants to negotiate, review and digitally sign legal agreements. This new capability was deployed for Emerald Technology Ventures, a venture capital firm with funds administered on Northern Trust’s blockchain in Guernsey. Northern Trust worked with law firms Carey Olsen, representing Emerald, and Allen & Overy, representing investors in the Emerald Industrial Innovation Fund, to digitally generate and agree to Limited Partnership Agreement side letters containing legally binding clauses.

“As financial markets move towards digital processes, Northern Trust will continue to drive the technology innovation that will redefine our industry,” said Pete Cherecwich, president of Corporate & Institutional Services at Northern Trust. “The collaboration and innovation that led to this further breakthrough in blockchain technology is a testament to all parties involved. The ability to leverage digital documents that include smart contract code across multiple platforms is a very significant step toward the future digital environment of securities servicing,” Cherecwich said.

Analysts say Northern Trust launched the first commercial blockchain solution for private equity fund administration in 2017 and was awarded four U.S. patents in 2018 for processes critical to the move from manual to digital operations in private equity. Northern Trust also collaborated with major audit firms to enable real-time auditing of private equity lifecycle events on the blockchain.

“The technology developed by Northern Trust will not only speed up the contract negotiation process but will also allow for a much greater automation and transparency of the fund’s legal and contractual requirements,” said Tom Carey, Partner at Carey Olsen in Guernsey. “Guernsey’s recent statutory validation of smart contracts and its expertise in private equity shows that it is the jurisdiction of choice now and for the future of fund administration,” he added.

Key to the latest enhancement is the ability to embed code in a legal agreement which is applied to the blockchain and persists through the lifecycle of the investment. The development neatly coincides with the recent approval in Guernsey of an amendment to existing law validating the legal effect of such smart contracts.

“We see digital contract collaboration platforms growing in use and are excited that Northern Trust have developed this advanced technology capable of delivering smart contracts directly to its Guernsey-based private equity blockchain. This is a very significant development for the industry,” said Hans Dellenbach, Partner and CFO at Emerald Technology Ventures.