SWIFT Joins with CSDs to Explore Blockchain in International Banking

SWIFT, or the Society for Worldwide Interbank Financial Telecommunications, has signed a Memorandum of Understanding with seven central securities depositories (CSDs) to form the CSD Working Group on DLTs, an association that will work to explore how Blockchain Blockchain Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned). In this sense, blockchain is immune to the manipulation of data, making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tamp Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned). In this sense, blockchain is immune to the manipulation of data, making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tamp Read this Term and other kinds of distributed ledger technologies can be used in post-trade events.

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More specifically, the MOU seems targeted toward the exploration of the use of DLT for e-Governance processes in corporate contexts, including voting and proxy voting. Additionally, the entities involved in the MOU will work together to build new kinds of blockchain-based products that can be used within the banking and financial industries.

Through the creation of these new technologies, the group also hopes to establish a set of standards that can be adopted throughout the financial industry as well as the regulatory sector.

Although more CSDs are expected to join the MOU within the coming weeks, the list so far includes Abu Dhabi Securities Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term, Caja de Valores, Depósito Central de Valores, Nasdaq Market Technology AB, National Settlement Depository, SIX Securities Services, and Strate Ltd.

In addition to endorsing the newly-formed group, the International Securities Services Association (ISSA) has included it as a piece of its own Working Group on Distributed Ledger Technology. As part of the ISSA working group, the group formed through the MOU will begin its work by establishing a structure for the use of digital assets for post-trade scenarios.

The outcome of this research (along with real-world use cases) is expected to be published in Q2 of 2018.

DLT in the Finance Industry: Interoperability is a Main Priority

The entities involved in the MOU are not seeking to create products that will replace their existing tools. Rather, they wish to experiment with how blockchain platforms could interact with pre-existing standards.

Indeed, SWIFT Head of Standards Stephen Lindsay spoke of the importance of standardization for interoperability: “To ensure interoperability and smooth migration, it is crucial that new technologies support existing common standards such as ISO 20022.” (ISO 20022 is a widely-used international standard that financial institutions can use for exchanging electronic financial data.)

There has been some adoption of--or at least experimentation with--blockchain technology spattered randomly throughout the financial industry. Among others, Santander and Amex announced a collaboration with the RippleNet near the end of 2017; UBS has been working with other major banks on the 'Utility Settlement Coin' since 2016.

However, Lindsay argues that the efforts to incorporate blockchain into the financial industry are stunted by the lack of regularity. “The promise of the technology on paper is great, but it is currently missing a key component around standardization,” he said. “There is clear value in re-using established business definitions and facilitating interoperability amongst DLT implementations, which this project will demonstrate.”

The creation of the CSD Working Group on DLT represents one of the first major international efforts to create a uniform system for the implementation of DLT in the financial industry--if successful, the group’s efforts could change the industry forever.

Thomas Zeeb, CEO of SIX Securities Services and ISSA Chairman, expressed his enthusiasm for the possible DLT products created and implemented as a result of the collaboration: “As the industry evolves, DLT-specific standards such as ISO 20022, will provide a great foundation, in terms of both existing business content and approach.”