Wells Fargo -New York

Wells Fargo, HSBC to Explore FX PvP Settlement

Wells Fargo has announced it will pilot Baton Systems’ Core-FX solution, built on Baton’s proprietary distributed ledger technology (DLT) and governed by the Baton Rulebook, with HSBC for PvP or instant settlement.

The move aims to establish an alternative interbank Payment vs Payment (PvP) settlement solution outside of CLS to address the expansion of FX settlement risk and deliver significant industry-wide benefits.

The pilot allows both parties to settle FX trades bilaterally on demand using US dollar, Canadian dollar, British pound sterling and Euro in real accounts, in less than three minutes. The solution enables the banks to choose what time to settle and in which currencies, all on a PvP basis – reducing settlement risks and FX processing costs.

Both companies also plan to add more participants and expand the platform to settle additional currencies in the near term, also on a PvP basis with legal settlement finality.

The objective is to cut costs in multiple areas, including compliance, reporting, security clearing, and settlement of cash transactions.

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.”

First PvP settlement outside of CLS framework

“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.

These moves are partly in response to the FSB’s roadmap, which encourages greater adoption of PvP. It also marks the inception of a profound change in FX settlements where both sides of the transaction are settled simultaneously and atomically, thus counterparty risk is eliminated.

The test also makes HSBC one of the first asset global banks to process a full end-to-end transaction using blockchain technology. However, the move follows other banks in pursuing similar pilot projects.

HSBC is one of the founding members of Voltron, a blockchain-based open industry platform for digitizing trade finance documents on Corda, R3’s blockchain platform. Other participants include Bangkok Bank, BNP Paribas, CTBC, Standard Chartered, ING, Natwest, and SEB, with delivery partners Bain, CryptoBLK, and R3, with a view to attracting more member banks and companies.