US Custody Bank Northern Trust Deploying Legal Clauses As Smart Contracts On Blockchain

Blockchain, Innovation, News | April 16, 2019 By:

Northern Trust, a major US custody bank, has expanded its blockchain solution to incorporate legal clauses in smart contracts.

Northern Trust is a financial services company organized in Delaware and headquartered in Chicago, Illinois that caters to corporations, institutional investors, and high net worth individuals. In 2017, Northern Trust launched the first commercial implementation of blockchain technology for private equity, which allowed a limited number of clients to manage ownership shares on a transparent distributed ledger technology (DLT) platform.

In its latest announcement, the bank said that it has pioneered the capability to deploy legal clauses as smart contracts directly from a digital legal agreement onto its private equity blockchain. According to Northern Trust, the new capability can be deployed to other platforms, with potential for broad use in generating digital documents and applying conditions beyond legal agreements.

Northern Trust’s application, which is leveraging advanced software developed by legal-technology startup Avvoka, was deployed for Emerald Technology Ventures, a venture capital firm with funds administered on Northern Trust’s blockchain in Guernsey, which recently acknowledged the legal effect of smart contracts. 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.

Pete Cherecwich, president of Corporate & Institutional Services at Northern Trust, said that 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.

“As financial markets move towards digital processes, Northern Trust will continue to drive the technology innovation that will redefine our industry,” said Cherecwic. “The collaboration and innovation that led to this further breakthrough in blockchain technology is a testament to all parties involved.

Tom Carey, Partner at Carey Olsen in Guernsey, said that 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.

“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,” said Carey.