HSBC Bank plc and Wells Fargo & Company (NYSE: WFC) enter into an agreement to use a blockchain-based solution for the netting and settlement of matched foreign exchange (FX) transactions.
HSBC And Wells Fargo To Use A Shared Settlement Ledger
Both the banks will now jointly use a shared settlement ledger to process US dollar, Canadian dollar, British pound sterling and Euro transactions. They also plans to extend the platform to settle additional currencies in the near future.
Utilizing blockchain technology, this solution provides each bank with ongoing real-time transparency of settlement status for matched Forex transactions in the applicable currencies.
The banks announced it will enable them to utilize Payment-vs-Payment (PvP) settlement netting in an efficient manner, which will reduce settlement risks and associated costs of processing Forex transactions.
Wells Fargo and HSBC Jointly Manages $5 Trillion
Wells Fargo and HSBC, both are leading financial services company in the world with managing around $2 trillion and $3 trillion worth of assets, respectively.
Wells Fargo & Company (NYSE: WFC) is has approximately $1.9 trillion in assets, proudly serves one in three U.S. households and more than 10% of small businesses in the U.S., and is the leading middle market banking provider in the U.S.
HSBC Holdings plc, the parent company of HSBC, is headquartered in London. HSBC serves customers worldwide from offices in 64 countries and territories in its geographical regions: Europe, Asia, North America, Latin America, and Middle East and North Africa. With assets of $2,969bn at 30 September 2021, HSBC is one of the world’s largest banking and financial services organisations.
Mark Jones, co-head of Macro, Wells Fargo Corporate & Investment Bank, said:
“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.”
The shared, private ledger enhances settlement speed and efficiency by using blockchain technology, applied under the framework of an agreed rulebook, to optimize PvP netting opportunities between Wells Fargo and HSBC. The banks will be able to net bilateral payment obligations and settle on a pre-agreed cadence multiple times per day within the flexibility of the settlement windows enabled by this technology. The offering builds on HSBC’s FX Everywhere platform which has settled over three million intrabank trades worth over $2.5tn since going live in 2018. Based on the results of this arrangement, the parties hope to expand the system to add more participants and to introduce a central Financial Market Infrastructure (FMI) provider to administer the platform rulebook.
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.”
The Blockchain Platform
The platform runs on Baton Systems’ blockchain inspired proprietary CORE distributed ledger technology and is governed by the Baton rulebook. The platform enables participants to efficiently settle bilateral cross border obligations across multiple onshore and offshore currencies, coupled with the added flexibility of extended settlement windows to optimize PvP risk reduction opportunities. Wells Fargo’s depth of USD liquidity and strong franchise in the Americas complements HSBC’s strength in Europe and Asia’s emerging markets.