21 April 2018

More major banks join UBS-led blockchain project

31 August 2017  |  16940 views  |  0 UBS building 1

A UBS-led plan to develop a digital cash system based on blockchain technology has won the support of six major banks ahead of a planned launch in late 2018

The Utility Settlement Coin (USC) was first thought up in 2015 when the Swiss bank UBS teamed up with UK-based blockchain company Clearmatics to launch the concept of a fully asset-backed digital cash instrument that would be cleared and settled via distributed ledger technology such as blockchain.

A year later the pair were joined by BNY Mellon, Deutsche Bank, Santander and broker/dealer Icap. And now six more major banks have been recruited.

The six comprise Barclays, Credit Suisse, Canadian Imperial Bank of Commerce, HSBC, MUFG and State Street and have joined at a time when the project shitfts into the next stage of development, according to Hyder Jaffrey, head of strategic investment and fintech innovation at UBS.

“We have been in discussions with central banks and regulators and we will continue that over the next 12 months with the aim of a limited ‘go live’ at the back end of 2018,” he told the Financial Times.

The discussions will centre on improving data privacy and cyber security in order to appease regulatory concerns. Jaffrey said that the USC will most likely be used in the interbank market to start with, enabling banks to repay each other in different currencies without having to go through the current  cross-border settlement infrastructure and instead rely on the potentially more efficient DLT. 

The next step will be to enable banks to settle securities transactions via the USC, however this will necessitate all the relevant securities to be transferred to blockchain systems to gain the settlement and verification benefits of the technology.

The tamper-proof algorithms employed by DLT allows users to automate the settlement process without the need for third-party verification and, following some initial scepticism, has now been embraced by a growing number of market participants eager to find the best way to realise the risk, capital and efficiency benefits of the technology.

“The distributed ledger is one of the most innovative technologies out there,” said Lee Braine from the chief technology office of Barclays’ investment bank. “From reducing risk to improving capital efficiency in financial markets we see several benefits of this project.”

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