Wells Fargo, HSBC Expand DLT Solution to Include Offshore Yuan

Wells Fargo & Company (NYSE: WFC) and HSBC Bank plc announced that the blockchain-based solution they are using for bilateral FX settlements is “expanding to include the offshore yuan (CNH).”

The offshore yuan “marks the fifth currency to be settled between the two banks using a shared settlement ledger that currently encompasses the U.S. dollar, Canadian dollar, British pound sterling, and the euro.” Since launching the shared DLT solution in December 2021, HSBC and Wells Fargo have “settled over $200 billion in transactions and plan to add additional currencies over the coming months.”

Vince Hindman, global head of Rates and FX Solutions, Wells Fargo Corporate & Investment Bank, said:

“We are pleased to expand the capabilities of the platform to include CNH, allowing us to reduce risk in the payment settlement process. The collaboration shows that we can pursue innovative technologies and apply them in a way that enhances our existing infrastructure and ultimately benefits our clients.”

Mark Williamson, global head of FX Partnerships & Propositions at HSBC said:

“Extending CNH PvP settlement to Wells Fargo is an important milestone for reducing Herstatt Risk outside G10 currencies. This development is only our first step in extending our coverage into Emerging Markets currencies.”

The shared, private ledger is “managed by joint Operations teams at HSBC and Wells Fargo with full visibility by each of the parties to the relevant FX settlement, along with shared FX transaction records.”

The platform is “governed under the framework of an agreed rulebook that facilitates efficient netting and settlement of FX transactions between HSBC and Wells Fargo in EUR, GBP, CAD, USD and now CNH.”

Participants in the network “are only privy to transactions in which they are a counterparty.”

The platform “runs on Baton Systems’ 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.”

As noted in the update, the FX and payments markets “continue to prioritize reducing settlement risk, utilizing PvP risk reduction tools, on-us settlement, and payment netting mechanisms.”

Recent global industry body statements on these topics “include the FX Global Code’s settlement risk principles 35 and 50, the Financial Stability Board’s G20 roadmap for enhancing cross-border payments, and the Committee on Payments and Market Infrastructures Stage 2 report to the G20.”

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