Wells Fargo, HSBC Bank To Use Blockchain-powered Solution To Settle FX Transactions
Banking major Wells Fargo is collaborating with HSBC Bank plc in using blockchain technology to power the netting and settlement of matched foreign exchange (FX) transactions by using a shared settlement ledger to process US dollar, Canadian dollar, British pound sterling and Euro transactions. The two banks also plan to extend the platform to settle additional currencies in the near future.
This is the first time that Wells Fargo will utilize a blockchain-based solution in the settlement process of cross-border payments. The solution, which runs on Baton Systems’ blockchain inspired proprietary CORE distributed ledger technology, optimizes settlement of foreign exchange transactions and reduces settlement risk.
The solution enables participants to efficiently settle bilateral cross border obligations across multiple onshore and offshore currencies, coupled with the added flexibility of extended settlement windows to optimize Payment-vs-Payment (PvP) risk reduction opportunities.
The shared, private ledger enhances settlement speed and efficiency, applied under the framework of an agreed rulebook, to optimize PvP netting opportunities between Wells Fargo and HSBC.
The banks will be able to net bilateral payment obligations and settle on a pre-agreed cadence multiple times per day within the flexibility of the settlement windows enabled by this technology.
The offering builds on HSBC’s FX Everywhere platform which has settled over three million intrabank trades worth over $2.5 trillion since going live in 2018.
Based on the results of this arrangement, the parties hope to expand the system to add more participants and to introduce a central Financial Market Infrastructure (FMI) provider to administer the platform rulebook.
The use of blockchain technology provides each bank with ongoing real-time transparency of settlement status for matched FX transactions in the applicable currencies. It will enable both parties to utilize PvP settlement netting in an efficient manner, which will reduce settlement risks and associated costs of processing FX transactions.
The FX and payments markets continue to prioritize reducing settlement risk, utilizing PvP risk reduction tools, on-us settlement and payment netting mechanisms.
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