• This marks the first real-world wider business application of the £FnPS, a first step towards enabling banks to deliver structural cash ratio benefits, while also reducing costs and risks
  • The transactions used funds held directly in the £FnPS, signalling their future acceptance as collateral between counterparties

 

London, 28.10.2024 – Banco Santander, Lloyds Banking Group, and UBS have successfully completed the first uncleared bilateral margin payments using a digital representation of central bank funds on the Sterling Fnality Payment System (£FnPS).

This real-world proof-of-concept proves that Fnality can be used to make bilateral margin payments using the £FnPS, and marks the first instance of a fully regulated Distributed Ledger Technology (DLT)-based payment system being used to settle margin for the purposes of real-world inter-bank derivative exposures.

As part of Fnality’s vision to develop a regulated FMI that addresses a variety of pain points across the financial market, these successfully settled margin transfers are a first step in exploring the potential use of £FnPS for cleared margin payments in the future, subject to further regulatory analysis. This use case is expected to ultimately enable significant balance sheet benefits for banks.

Concurrent with the pilot transactions in the live £FnPS environment, Adhara also simulated this transaction flow in a testing environment to explore how its MarginBloc technology could provide further efficiencies and unlock new options for intraday margining processes in the future. Following Adhara’s parallel simulation, participants will also have the opportunity to engage with its MarginBloc solution. MarginBloc unlocks new options for intraday margining processes and the potential benefits of digital assets as a clearing product by streamlining and reimagining the cash settlement process for cleared and uncleared initial and variation margin transactions.

 

John Whelan, Managing Director of Digital Assets at Banco Santander, said: “Another first for Fnality – this time in establishing the key proof point that the system can be used functionally for margin payments, a key component of the future of automation of a bank’s balance sheet.”

Peter Left, Head of Digital and Markets Innovation at Lloyds Banking Group, said: “This live first usage of £FnPS to settle margin for the purposes of exposure reduction on inter-bank derivative transactions shows great promise. We are excited to see new functions develop allowing greater automation of the margining workflow reducing counterparty exposures across the industry.”

Hyder Jaffrey, Head of Principal Investments & Strategic Ventures, UBS, said: “The transactions are a significant first step in showing the acceptance of funds held directly in the FnPS as acceptable collateral for discharging uncleared margin payments – and a great preview of what is to come.”

Angus Fletcher, CEO at Fnality UK, said: “This milestone demonstrates the first step in our exploration for a fully regulated DLT-based payment system being used to settle margin for cleared derivative transactions, allowing us to further demonstrate positive progress. The benefits that our system brings are evident, and we’re glad to have worked with Banco Santander, Lloyds, UBS and Adhara to show the usability of our £FnPS. With this, we continue to build up to our vision for a network of FnPSs.”

Edward Budd, Co-Founder of Adhara, said: “Managing these margin payments for uncleared transactions has allowed us to see first-hand the benefits that can be brought to participants. Once margin payments for cleared transactions are enabled, our MarginBloc solution will provide a consistent solution across the market to streamline the use of digital cash assets among treasurers, operations, and bilateral counterparts.”

Fnality is realising a multi-jurisdictional vision, where a network of FnPSs, interoperable on a 24/7/365 basis, will facilitate a seamless global liquidity management ecosystem. This will empower new digital payment models for payment (P), payment versus payment (PvP), and delivery versus payment (DvP) transactions in both wholesale financial markets and emerging tokenised asset markets. Subject to regulatory approval, Fnality has plans for US expansion in 2025.

– ENDS –

Notes to editors

These transactions were executed within the parameters set by the Bank of England for Fnality’s initial stage of operations.

 

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About Lloyds Banking Group

Lloyds Bank International is a wholly owned subsidiary of Lloyds Bank Corporate Markets in the United Kingdom, which is in turn part of Lloyds Banking Group, one of the largest banking groups in Europe.

Lloyds Bank’s overseas expansion began in 1911 and the Lloyds Bank International name, historically a major international commercial bank, is now used for the group’s offshore banking interests.

For more information, please visit: https://www.lloydsbank.com/international.html

 

About Banco Santander

Banco Santander (SAN SM) is a leading commercial bank, founded in 1857 and headquartered in Spain and one of the largest banks in the world by market capitalization. The group’s activities are consolidated into five global businesses: Retail & Commercial Banking, Digital Consumer Bank, Corporate & Investment Banking (CIB), Wealth Management & Insurance and Payments (PagoNxt and Cards). This operating model allows the bank to better leverage its unique combination of global scale and local leadership. Santander aims to be the best open financial services platform providing services to individuals, SMEs, corporates, financial institutions and governments. The bank’s purpose is to help people and businesses prosper in a simple, personal and fair way. Santander is building a more responsible bank and has made a number of commitments to support this objective, including raising €220 billion in green financing between 2019 and 2030. In the first half of 2024, Banco Santander had €1.3 trillion in total funds, 168 million customers, 8,300 branches and 209,500 employees.

Santander Corporate & Investment Banking (Santander CIB) is Santander’s global division that supports corporate and institutional clients, offering tailored services and value-added wholesale products suited to their complexity and sophistication, as well as to responsible banking standards that contribute to the progress of society.

For more information, please visit: https://www.santander.com/en/home

 

About UBS

UBS Group AG is a multinational investment bank and financial services company founded and based in Switzerland. Co-headquartered in the cities of Zürich and Basel, it maintains a presence in all major financial centres as the largest Swiss banking institution and the largest private bank in the world.

For more information, please visit https://www.ubs.com

 

About Fnality

Fnality is developing a series of regulated DLT-based wholesale payment systems. Each system, known as a Fnality Payment System (FnPS), is supervised by its respective central bank.

Within a FnPS, participants utilise bankruptcy remote settlement balances backed 1-to-1 by central bank money for real-time wholesale payments. The launch of FnPSs in key jurisdictions will enable real-time cross-currency payments, and the secure atomic settlement of any delivery versus payment transactions around the clock. The credit quality of the central bank funds underpinning Fnality Payment Systems provides the missing ingredient for novel digital asset markets: institutional grade digital cash.

In December 2023, the Sterling FnPS, previously recognised by HM Treasury as a systemically important payment system, commenced controlled live payments. Joining a handful of other regulated payment systems in the UK, it became the world’s first regulated DLT-based wholesale payment system, settling in digital central bank funds.

Fnality’s shareholders comprise: Barclays, BNP Paribas, BNY Mellon, CIBC, Commerzbank, DTCC, Euroclear, Goldman Sachs, ING, KBC Group, Lloyds Banking Group, Mizuho Financial Group, MUFG Bank, Nasdaq Ventures, Nomura, Santander, Sumitomo Mitsui Banking Corporation, State Street Corporation, UBS and WisdomTree.

For more information, please visit fnality.com

 

About Adhara

Adhara is a leading software company that provides real-time, multi-currency, liquidity management and international payment solutions. Adhara’s platforms deliver certainty by atomically clearing and settling tokenized fiat transactions over enterprise-grade, smart contract-enabled distributed ledgers, benefiting commercial banks, their corporate clients, central banks, exchanges and international payment. Together, Adhara’s components provide comprehensive liquidity management capabilities for payments, market making and funding solutions, helping to manage FX risk and leverage global liquidity (on a network) in real-time. Adhara has a global reach with development hubs in Spain & South Africa and business bases in the UK and Singapore. Its diverse team has decades of experience across commercial banking technology, capital markets, blockchain and product design & development – including an Engineering team with excellence in cryptography, enterprise systems and end-user app development.

For more information, visit  www.adhara.io