Fnality and EPAM discuss how blockchain solutions are becoming more mainstream in financial services, and its partnership to launch a post-trade payments settlement service.
EPAM and Fnality International partnered five months ago to develop a network of distributed Financial Market Infrastructures (dFMIs) – a next-generation blockchain-based payment system for wholesale banking, integrating cross-border financial transactions capability in a remote, distributed working environment to improve efficiencies, enable faster trade settlement and reduce risk.
Adam Clarke, CTO of Fnality, told IBS Intelligence that Fnality, which is a consortium backed by 15 financial institutions, has created the Fnality Payment Systems (FnPS) solution to allow participants to move money in a peer-to-peer fashion, facilitated by blockchain.
“What we’re doing is actually pretty unique. There isn’t anyone else out there doing this,” Clarke said. “The point is you don’t have to have a central bank account to be able to use or be a participant of the FnPS. You do need a correspondent bank to move the money into the bank account, but once the money lands in the bank account, we tokenise the asset or cash, and you take ownership of it. And then you can move the ownership of that cash to someone else using the FnPS, giving you instant settlement finality.”
The FnPS solution comprises of a series of payment systems across different jurisdictions and currency areas (currently USD, JPY, GBP, EUR and CAD with plans to expand). It facilitates payments-versus-payments – the settlement of foreign exchange transactions – and delivery-versus-payments – the settlement of other financial transactions such as transfers of securities.
He added that the network massively reduces counterparty risks as they never hold the money or any ownership.
Nicola Els, Head of Growth at Fnality, adds that the reduction in settlement times means less risk in the system and more efficiency, but the main benefit for Fnality is the removal of intermediaries from the settlement system.
“I think that is very important for us because currently, central banks only allow a restricted number of institutions to hold accounts with them and the Fnality payment system is going to be enabling true peer-to-peer settlement, where that’s not necessarily been the case, and we won’t be excluding those market participants.”
To create FnPS, Fnality partnered with software engineering and product development expert EPAM for both the build and for input on the payment system architecture.
Ben Brinkworth, Senior Director at EPAM, describes the company as the developers’ developer, which is excited about the disruptive nature of the blockchain payments platform as it can help build trust and resilience across financial systems.
“Typically, when you talk about blockchain use cases, the fundamental driver is trust. Whether the economic situation that we find ourselves in at the macroeconomic level is driving that because people are looking to put resilience into any financial system –building trust in blockchain enables that. Other facets include time to move, cost through the overhead of intermediaries, and risk. Altogether, they’re pointing to the fact that we’re in a tough economic spot, and both retail and corporate customers are wanting trustworthy mechanisms.”
Clarke added that there is an uptick in utilising blockchain and distributed ledger technology across financial services, the use of Ripple and R3’s Corda in payments, and the tokenisation of securities and assets.
“It’s for all those same reasons: what you get is a very resilient, very reliable technology solution to a problem which is quite messy,” he said, adding that the current two-three day settlements have been built over a 30-year period.
“A blockchain implementation is a really good way of moving on to getting that distributed agreement and consensus on any one thing happening; it massively simplifies your processes associated with trade. The moment you can start to tokenise an asset it becomes so much easier to move, and I think that’s probably a big part of it, whether that be money, security or anything.”
The system offers interoperability with blockchain networks and integration with legacy systems.