Revolutionising corporate actions: the case for standardisation and blockchain integration in financial services
Written by Gary Bond, CEO, TURN
In today’s fast-moving financial landscape, corporate actions like mergers, acquisitions, stock splits and dividend pay-outs are vital to the proper functioning of markets. These events significantly impact the value of securities, and the strategies asset managers and clients employ. Duygu Kaya, capital markets strategy director at Swift, identified three issues:
“Sourcing, corporate actions data comes from multiple different sources and the majority of them have their own formats, their own systems or even their own communication methods. This inconsistency naturally leads to data fragmentation, where reconciliation becomes a huge headache and often requires manual work and intervention. Receiving information from various sources adds to the operational complexity and creates room for errors and delays. The second issue we see is around timing. Delay and inaccuracies in getting information out can lead to missed entitlements or even claims. So, ensuring that the information about a corporate action is both timely and accurate is crucial. With the push for shorter settlement cycles and 24/7 trading, the stakes are even higher. Everyone needs accurate, real-time communication. But we see that many systems just aren’t built for that level of responsiveness, which adds further strain to the processes. Then, finally, the third issue is the issue of communication. Just the sheer complexity of having so many players involved be it custodians, asset managers, issuers or agents, creates bottlenecks. It creates miscommunication and a lot of duplicated work for everyone that’s involved.”
But, despite their importance, managing corporate actions remains a challenging task, often riddled with inefficiencies, errors and delays; these complications can disrupt operations for investors and institutions alike. The problem stems from the fact that corporate actions involve a variety of stakeholders, including asset managers, custodians, platforms and regulatory bodies. Each participant manages the same data (such as event dates, shareholder approvals and cash distributions) differently, which can lead to discrepancies, confusion and delays. Many processes are still manual, which only adds to the risk of human error. This is particularly evident when dealing with mergers or acquisitions, where incorrect or delayed data can lead to costly mistakes. In addition to operational inefficiencies, regulatory scrutiny is also a major concern. Regulatory bodies, such as the Financial Conduct Authority (FCA) and the European Securities and Markets Authority (ESMA), have strict rules on corporate actions - even minor errors can result in substantial fines and reputational damage. It is estimated that almost 46% of corporate action data is manually processed, resulting in administration costs of US$3-5 million per firm annually. As a case in point, Robinhood reported the inability to process a corporate action (specifically, a 1-25 reverse stock split for Cosmos Health) which resulted in financial losses of $57m. As a result, managing corporate actions accurately and efficiently is essential, not only for operational success but also for regulatory compliance.
A solution that has been discussed widely is the standardisation of corporate actions data. By developing a unified system for managing these actions, all involved parties can work with the same set of data, improving communication and reducing confusion. A standardised approach would ensure that important data points, such as event dates, shareholder approvals and cash distributions, are represented consistently across all platforms. Not only would this improve efficiency but it would also help to reduce operational risks, particularly in the face of regulatory scrutiny. Incorporating blockchain technology into the standardisation process is an important part of the solution since blockchain-powered platforms offer several advantages that can greatly enhance efficiency and reduce errors in managing corporate actions. One of the key benefits of using a blockchain is its immutability; once data is recorded, it cannot be altered. This ensures that corporate action data remains intact, making it resistant to fraud and human error. Blockchain technology also provides real-time transparency - all stakeholders can access the same accurate data in real-time, which increases trust and helps to avoid confusion. With decentralisation, blockchain technology ensures that data is secure, even if one part of the system fails. Unlike traditional, centralised systems, blockchain guarantees that data remains accessible and protected from security breaches. And by deploying smart contracts, it is possible to automate many of the processes involved in corporate actions. These self-executing contracts can trigger actions like data sharing, automating regular payments such as dividends, coupons and interest as well as updating shareholder records automatically when specified conditions are met. By automating these tasks, a blockchain-powered platform reduces the need for manual intervention, speeding up processes and decreasing the likelihood of human error. In its recent podcast, DTCC highlighted that: “Blockchain technology and smart contracts have the potential to improve the efficiency and transparency of corporate actions. However, the complexity of implementing these technologies and the need for alignment across various systems are highlighted.”
However, whilst blockchain can provide a solid foundation for transforming corporate actions management, collaboration is essential for success. The involvement of custody banks is critical as they play a key role in managing and overseeing corporate actions. Engaging these banks, along with other stakeholders, will be crucial in driving the standardisation process forward. Projects by DTCC, Chainlink and SWIFT show how integrating ISO 20022 formats with blockchain can streamline dividend payments, mergers and entitlements. Smart contracts and on-chain data ensure accuracy, reduce costs and improve transparency paving the way for faster, more resilient post-trade operations across global finance. A standardisation framework needs to be developed whereby creating a universal template for managing corporate actions. Potentially blockchain-powered solutions that offer a secure, transparent and automated platform for handling corporate actions more efficiently could be deployed. Ultimately, such a framework depends on collaboration among all players in the financial services ecosystem - from asset managers and custodians to technology providers and regulatory bodies. By aligning on a unified system and embracing blockchain technology, the financial services industry can significantly improve the management of corporate actions, reducing errors, enhancing efficiency and ensuring compliance with regulations.
Meanwhile, corporate actions dividends, mergers and stock splits are critical to capital markets, yet still run on outdated, manual processes prone to error, delay and miscommunication. In a world of T+1 settlement and 24/7 trading, how can global finance justify relying on fragmented data flows and duplicated workflows for events that directly impact investor value? As financial institutions juggle inconsistent formats and siloed systems, the real risk isn’t just inefficiency, it’s the systemic fragility exposed when timing breaks down or entitlements are missed. Who pays the price when outdated infrastructure fails? The standardisation of corporate actions, driven by blockchain technology, holds great potential for transforming the financial services industry. It offers a pathway to more efficient, secure and transparent operations, which will benefit not only financial institutions but also their clients and the broader financial market. Ultimately, through continued collaboration and innovation, we can create a more streamlined and compliant corporate actions process that sets new industry standards for years to come.