Wells Fargo and HSBC Bank revealed plans to use a blockchain platform to net and settle foreign exchange (FX) transactions.
The banks will settle bilateral transactions using a shared settlement system to process USD, CAD, GBP, and EUR transactions with plans to utilize the platform in settling other currencies in the future. The platform will initially carry out around a hundred transactions per week and gradually increase the number of transactions over time.
The arrangement allows both parties to utilize transparency and payment versus payment (PvP) net settlement, thus reducing costs and settlement risks.
Notably, the shared settlement system gives both companies faster settlement time and efficiency as it leverages blockchain technology. They will also work within agreed guidelines to ensure efficient PvP net settlement.
This also makes it possible for both banks to net bilateral payment commitments and settle the payments as agreed. This can be done several times in a day as permitted by the settlement windows created by the technology.
Mark Jones, co-head of macro at Wells Fargo Corporate & Investment Bank, said they’re “extremely excited” to utilize 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,” he said.
Leveraging HSBC FX Everywhere platform
The new initiative is built on the FX Everywhere platform, which HSBC launched in 2018. The platform settled over three million foreign exchange transactions in 2019, amounting to about $2.5 trillion.
Considering the success so far, the two banks intend to expand the system to include more participants and introduce a central Financial Market Infrastructure (FMI) provider to administer the platform rulebook.
“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,” said Mark Williamson, global head of FX Partnerships & Propositions at HSBC.
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