HSBC and Wells Fargo to complete first interbank PvP settlement outside of CLS

abdelaziz Fathi

In major industry milestone, HSBC and Wells Fargo are teaming up to complete a pilot to settle a foreign exchange (FX) contract using blockchain technology and smart contracts.

The global banks want to provide tangible evidence where distributed ledger technology (DLT) can deliver a new level of efficiency, transparency, and risk management capability versus the existing market infrastructure.

Through this agreement, Wells Fargo and HSBC will use a shared settlement ledger to process US dollar, Canadian dollar, British pound sterling and Euro transactions. The banking giants also plan to extend the platform to settle additional currencies in the near future.

This blockchain-based solution provides each bank with ongoing real-time transparency of settlement status for matched FX transactions in the applicable currencies.

In particular, both parties in the FX transaction will be able to view the trade on the blockchain and verify the term sheet data and payment amounts. It also enables each bank to utilize Payment-vs-Payment (PvP) settlement netting, which will reduce settlement risks and associated costs of processing FX transactions.

Baton Systems’ Core-FX solution

Commenting on the announcement, Mark Williamson, global head of FX Partnerships & Propositions at HSBC said: “As financial services continue to digitize the store of payment and value on blockchain, we are delighted to work with Wells Fargo in the adoption of this important cross-border digital backbone for the confirmation and settlement of Foreign Exchange trades. We are excited to continue to grow the FX Everywhere network whilst ensuring that we are well placed to transact in new forms of regulated digital currencies such as Central Bank Digital Currencies.”

“We are pleased to announce that we will be utilizing blockchain technology for the first time in the settlement process of cross-border payments. We are extremely excited to be collaborating with HSBC on a project which places both organizations at the forefront of blockchain innovation. We believe this will be the first step of many utilizing transformative technology across our industry in the years ahead,” added Mark Jones, co-head of Macro, Wells Fargo Corporate & Investment Bank.

HSBC and Wells Fargo said they have chosen Baton Systems’ Core-FX solution, built on Baton’s proprietary distributed ledger technology, to complete the world’s first interbank Payment vs Payment (PvP) settlement outside of CLS.

Other benefits, according to the lenders’ statement, also include the immediate and simultaneous transfer of assets, settling transactions in real-time, as well as reducing counterparty risks and the capital costs.

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