Bank of England chooses a Central Bank Account for Fnality Blockchain Settlement Tokens
The Bank of England (BofE) has announced a new type of central bank account that will enable Fnality, a company established by 15 major financial institutions, to go live once authorized.
Fnality, initially known as the Utility Settlement Coin (USC), is designed to allow banks to settle on blockchains using tokenized money based on a single central bank account.
Since it allows instant settlement and eliminates counterparty risk, fiat cash on the ledger is seen as the missing link in unlocking much of blockchain’s potential in an institutional environment.
A typical scenario in which this would be useful is if banks wanted to use a blockchain to execute securities settlements, which is a hot topic right now, particularly for bonds.
Today, the Bank of England announced the development of an Omnibus account, which “co-mingles” funds from various entities for wholesale settlement purposes.
Co-mingling would be done by regulated organizations with access to central bank funds. Fnality has already applied to an omnibus account.
According to the BofE announcement, the account can be used to settle transactions on behalf of consumers.
Such as a small business paying a supplier and is not limited to wholesale transactions like purchasing gilts.
“We are pleased to see the Bank of England issue a formal policy statement detailing the omnibus account eligibility requirements for innovative payment systems such as Fnality. Fnality CEO Rhomaios Ram said, “This strategy is a key enabler in delivering game-changing use cases on our new payment system.”
Any payment mechanism that uses such an account, such as Fnality, is not restricted to the hours of operation of the real-time gross settlement system (RTGS), as long as the required funding was applied to the account during RTGS working hours.
A system like Fnality’s has advantages over single bank tokens precisely because it can allow interbank transactions, in addition to intraday transactions and liquidity.
“It’s exciting to see the Bank of England promote the use of tokenized cash assets on next-generation payment systems, allowing the on-chain wholesale exchange of value,” said John Whelan, MD of Banco Santander’s Digital Investment Bank & Innovation. Santander’s Whelan led Santander’s issuance of a digital bond on the public Ethereum blockchain.
Fnality makes use of an Ethereum-based permissioned blockchain. Clearmatics was the original technology maker, but Fnality declared a collaboration with Adhara early last year.
It intends to operate in multiple currencies using blockchain payment systems, with a controlled subsidiary in each jurisdiction.
When a bank wishes to pay Fnality tokens, it moves funds from its central bank account to the Fnality omnibus account, which tokenizes the funds.
The bank then deposits with the tokens, and the receiver bank will then convert the tokens back to central bank money.
And this way, will it corrected to its main bank account. It could also use the tokens to make additional payments.
“Having been a part of the Fnality journey from the beginning, it’s fantastic to see this policy published,” said Hyder Jaffrey, MD – Head of Principal Investments, UBS Investment Bank. “It exemplifies the Bank of England’s innovative and forward-thinking approach to supporting global payments innovation. This approach will allow us to create new settlement models, which will benefit all market participants.”
JP Morgan is also working on an interbank settlement scheme in Singapore with DBS Bank and Temasek.
The Bank of England also announced today the formation of a Taskforce with HM Treasury to look into the possibility of a sterling CBDC.