Northern Trust strengthens private equity audit via blockchain technology with PwC

21 March 2018

Blockchain innovation in fund administration, launched for the first time in Guernsey last year, has taken a further step forward with Northern Trust’s announcement that firms can now carry out audits of private equity lifecycle events directly from the blockchain.

The latest enhancement allows auditors to have their own blockchain node, providing access to relevant fund data to enable real-time audit. Northern Trust, working with PwC and other firms in Guernsey, has proved that auditors can now access fund data held on the private equity blockchain to audit specific events.

This development gives the audit firms access to a ‘golden copy,’ or immutable master record, of the fund’s data from their own offices. They can then either transfer the required data into internal applications to complete the audit process, or develop new tools that allow them to complete their work directly from the blockchain itself.

“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. Such innovation assists clients as they invest in the opportunities arising from emerging technologies. This ongoing process will help ensure we are in the best possible shape to adapt in the coming years of change.”
PwC Channel Island Partner Nick Vermeulen

Continuing development of audit capabilities and automation of the audit process by PwC will allow audits to be completed in real time as lifecycle events occur. This will help ensure that audits are more streamlined and efficient, increasing transparency of the underlying transactions to the auditors.

Northern Trust President of Corporate & Institutional Services Peter Cherecwich said that by expanding its private equity blockchain ecosystem to the audit community, the company had enabled transactions to be recorded on a blockchain in real time.

“This will result in direct efficiencies to both the audit firms and Northern Trust, and provide investors with a more timely and valued assurance product,” Mr Cherecwich added.

PwC Channel Island Partner Nick Vermeulen said it was exciting for his company to leverage the distributed ledger within Northern Trust’s private equity system to innovate the approach to auditing private equity funds.

“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,” Mr Vermeulen said. “Such innovation assists clients as they invest in the opportunities arising from emerging technologies. This ongoing process will help ensure we are in the best possible shape to adapt in the coming years of change.”

The solution developed by Northern Trust is based on the open source Linux Foundation Hyperledger Fabric. Northern Trust is also using the IBM Blockchain Platform on the IBM Cloud to develop and run the network with hardware assisted cryptography and key management to enhance the safety and scalability of these transactions.

Northern Trust collaborated with IBM, as well as other key stakeholders, to launch the first commercial deployment of blockchain technology for the private equity market in February 2017.

Guernsey’s other connections with blockchain include Guernsey-domiciled ILS reinsurance transformer Dom Re IC Limited, an incorporate cell of Solidum Re (Guernsey) ICC Limited, issuing what is believed to be the first notes ever to have been digitized on a private blockchain, know as the ‘ILSBlockchain’ last August. Two funds performed the first secondary market securities trade on the ILSBlockchain towards the end of 2017.

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