* Calastone to shift fund network to blockchain in May
* Processes 9 mln messages a month worth 170 bln stg
* Blockchain could cut 3.4 bln stg/yr from costs -Deloitte
By Tom Wilson and Simon Jessop
LONDON, Dec 3 (Reuters) - Calastone, an investment funds transaction network, said on Monday it will shift its entire system to blockchain in May, a move that could slash costs for the sector by billions of dollars a year.
London-based Calastone provides back and middle-office services to more than 1,700 firms such as JP Morgan Asset Management, Schroders and Invesco, helping them sell their funds across the world through banks and other local financial advisors.
The shift will see more than 9 million messages a month between those counterparties - worth more than 170 billion pounds ($217 billion)- completed on blockchain, marking a move into mainstream finance for a technology whose hype has rarely been matched by widespread usage in major industries.
Currently three separate messages are sent digitally between firms as they buy into a fund: one to place orders, another to confirm receipt, and a third to confirm the price.
Though more reliable than manual methods of communicating like faxes - still used by some in the industry - that messaging process is still cumbersome and time-consuming.
Moving to blockchain could slash as much as 3.4 billion pounds ($4.3 billion) a year in global fund industry costs by pooling trading and settlement processes, Calastone said, citing research by consultants Deloitte.
Savings on such a scale would be a boon to the fund industry as it is buffeted by investor pressure to lower fees - its main source of revenue - and rising costs, much of it linked to tougher regulations after the financial crisis.
"The more you can automate, the more you de-risk, you more you streamline, the more you speed up," said Andrew Tomlinson, chief marketing officer at Calastone.
FROM HYPE TO REALITY?
Originally conceived to underpin the cryptocurrency bitcoin, blockchain is a shared database that can process and settle transactions in minutes. It does not need middlemen for checks and its entries cannot be changed, making it highly secure.
Proponents say it has the power to revolutionise industries from finance to shipping by making back office jobs more efficient. That prospect has sparked tests by banks and other financial companies across the world over the last few years.
But despite the hype, few blockchain projects have been put into practice in the finance sector, due in part to worries over costs, regulation and how widely used it can become.