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BoE Gov Expresses Support For Blockchain-based Settlement Processes

The governor of UK’s central bank has stated that blockchain technology could play a major role in improving the efficiency of the financial sector and could bring about a major transformation in the process.

Blockchain also known as distributed ledger technology is the underlying framework for the digital currency bitcoin.

In this process, a shared ledger is securely updated in realtime by different participants, removing delays in processing.

Addressing the Treasury's first International Fintech conference, governor Mark Carney highlighted the various advantages of using blockchain for processes related to clearing, payments and settlement, noting that its adoption has the potential to save banks billions of pounds while making the financial system far more resilient.

hmtreasuryuk

The Bank of England had earlier indicated its plans to evaluate blockchain for use in its settlement & payments systems and has also conducted research on how it could be leveraged.

In a statement, Mark Carney said

Securities settlement seems particularly ripe for innovation. A typical settlement chain involves many intermediaries, making it comparatively slow and keeping operational risks high. Industry has begun to work together to determine how distributed ledger technologies could be used to solve these issues at scale.

The use of blockchain particularly in clearing and settling payments has the potential to reduce duplicative tasks and admin time. It will eliminate the use of middlemen such as clearing houses and create separate ledgers that can be used to monitor trades, enabling banks and other parties to be directly involved. According to a 2015 research report from Santander and Oliver Wyman, the use of blockchain could slash up to $20 billion in infrastructure-related spending for banks.

In his speech, Carney announced that the bank was working on developing a Proof of Concept shared ledger for its real-time gross settlement (RTGS) system that would maintain privacy and deploy the use of Big Data tools. Carney further highlighted that the central bank was part of the open-source Hyper ledger blockchain project led by the Linux Foundation.

The central bank is also working closely with fintech companies under its accelerator program.

He also pointed out that UK’s financial regulator body, the Financial Conduct Authority (FCA) had recently pointed out that settlement times could be further reduced even with existing technologies. To achieve any such efficiency Carney said that it was important for all market participants to cooperate and mutually change their practices.

Carney emphasized that the Bank of England was committed to developing the necessary infrastructure for financial technology firms to innovate and reach their potential, noting that fintech had the capacity to democratize financial services with better reach and pricing.


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