Vendor Synaps Loans and a group of banks working under the R3 blockchain banner, say they have made big progress in an initiative to apply distributed ledger technology to an overhaul of the antiquated and costly manual intervention in the $3 trillion global syndicated loans market.
Synaps Loans - a joint venture created last year through a partnership between smart contract vendor Symbiont and loan settlement platform provider Ipreo - worked with Credit Suisse and a host of agent banks service providers, and fund managers to carry out a "successful demonstration" of the working blockchain system for syndicated loan servicing.
Settlement periods of 20 business days or more threaten the continued growth of the loan market. Syndicated loans have a record unsettled exposure of more than $70 billion, over twice that of high-yield bonds. For the sell-side, the delays tie up precious capital. For the buy-side, settlement uncertainty confounds cash management and necessitates costly credit lines.
Synaps says that it gives loan investors direct access to an authoritative system of record for syndicated loan data. This yields immediate savings by reducing manual reviews, data re-entry and systems reconciliation. In the future, loan data processing can be done exclusively on the distributed ledger, the firm believes, eliminating the cost for each market participant to maintain its own separate lending system.
"Synaps now has the majority of the functionality needed to implement blockchain technology at scale in the syndicated loan market, which enables us to move into the final stages of development," says Emmanuel Aidoo, head, distributed ledger and blockchain effort, Credit Suisse.
"Over the coming months we will work with Symbiont and Ipreo to implement the remaining functions to allow for distributed ledger technology to support a syndicated loan facility from origination to payoff, and work toward market adoption. The technical and market expertise that the project participants brought to the table means this solution will be tailor-made for use in live transactions."
Mark Smith, CEO, Symbiont, adds: "With this project we have proven that smart contracts can revolutionize the entire lifecycle of a loan, from creation to settlement in secondary trading. Fifteen different parties played roles in the final demo, executing bespoke and complex tasks on-platform. We look forward to working with these parties to deploy the technology in production."
Separately, the Hong Kong Monetary Authority (HKMA), Bank of China, Bank of East Asia, Hang Seng Bank, HSBC, Standard Chartered Bank, and Deloitte have carried out a proof-of-concept using a distributed ledger platform for trade finance.
"This proof of concept has demonstrated the application of DLT in digitising paper-intensive processes through smart contracts, reducing the risk of fraudulent trade and duplicate financing, and improving the transparency and new product innovation of the industry as a whole," say the partners.
A second phase of the project will see Standard Chartered invite clients to take part in a pilot.