Project Meridian: innovating transactions with synchronisation

ProjectMeridian Simplifyingtransactionsthroughinnovation Executivesummary Context Synchronisation Prototype Technology Otherassets Futureconsiderations Contents Executivesummary2 ContextforProjectMeridian5 Introductiontosynchronisation7 Whatissynchronisation?9 Benefitsofsynchronisation11 Aprototypeforsynchronisedsettlement13 Objectivesofbuildingthe Meridianprototype15 Technologyfindings27 Innovativeuseofdatastandards28 UseofDLTnetworkto orchestratesettlement31 Applyingsynchronisation tootherassetclasses32 G20roadmapforimproved cross-borderpayments33 Exploringaforeign Synchronisedsettlementforasingletransaction 18 exchangetransaction Futureconsiderations 34 36 Settlinginterrelatedtransactionssimultaneously 22 Policyandoperationalconsiderations 38 BenefitsoftheMeridian Regulatoryconsiderations 39 prototypeforsettlementPotentialbenefitsoftheMeridian 24 Legalconsiderations 39 prototypebeyondsettlement 25 Withthanksto Executivesummary Context Synchronisation Prototype Technology Otherassets Futureconsiderations 1Executivesummary ProjectMeridianisajointprojectbetweentheBankforInternationalSettlements(BIS)InnovationHubLondonCentreandtheBankofEngland.Itinvestigateshowrecentrapidadvancesinfinancialtechnologycoulddeliverinnovationsinreal-timegrosssettlement(RTGS)systems,whichsitatthecoreofmodernelectronicpaymentsystems. Executivesummary Context Synchronisation Prototype Technology Otherassets Futureconsiderations ProjectMeridianexperimentswiththeconceptofsynchronisation.ThisinvolvessettlingatransactionusingcentralbankmoneyinanRTGSsystem.Fundsmoveifandonlyifanassetonanotherledgeralsomoves,reducingcostsandrisks,andincreasingefficiencies.SynchronisationbuildsontheexistingconceptofinterlinkingassetledgerswithRTGSsystems,seekingtodevelopfunctionalitythatallowssynchronisedsettlementincentralbankmoneyforawiderangeofassets. Synchronisationisachievedbytheintroductionofanewentitycalledasynchronisationoperator.1ThisoperatorwouldinterlinkRTGSsystemswithotherfinancialmarketinfrastructures(FMIs)andledgers,automaticallyorchestratingtheexchangeinownershipoffundsandassets.Theoperatordoesnotholdthefundsorassetsonabalancesheetofitsown. Synchronisationusingcentralbankmoneycouldreducethetime,costandriskoftransactions.Iteliminatestheriskofacounterpartyfailingtohandoverownershipofanasset(“settlementrisk”).Itcouldalsoreduceliquiditycosts,bycuttingtheamountoftimethatassetsneedtobereservedforaspecifictransaction. “Synchronisationusingcentralbankmoneycouldreducethetime,costandriskoftransactions.” TheMeridianprototypedevelopsasynchronisationnetworkusing distributedledgertechnology(DLT).TheprototypedemonstrateshowaDLTnetworkcanconnecttotheresilientandsecurecentralisedsystemsofactorsinatransaction–includingtheRTGSoperator–usingopen-standardapplicationprogramminginterfaces(APIs). TheAPImessagesexchangedbetweenfinancialinstitutionsleverageexistingglobalstandardsforpaymentmessages,namelyISO20022.A relativelysimplegenericinterfacegivesasynchronisationoperatorahighlevelofcontroloverthemovementofcentralbankmoneyandofanassetin atransaction.Thiscontrolenablessynchronisedsettlementoffundsandanasset. Executivesummary Context Synchronisation Prototype Technology Otherassets Futureconsiderations TheMeridianprototypedemonstrateshowtoorchestratesynchronisedsettlementincentralbankmoneyusinghousingtransactionsasanexploratoryusecase.Applyingtheprototypetootherassetclasses,suchasforeignexchange,wasaprincipaldesignconsideration.ThegenericinterfacecouldofferastandardwayforsynchronisationoperatorstoconnectmultipletypesofassetledgerstoanRTGSsystemandsettleincentral bankmoney. Theprototypealsohighlightstheopportunityforadditionalefficienciesthatenableinnovationbeyondthedirectbenefitsofsynchronisedsettlement.Theprototypedigitisesthechangeinassetownershipbyintroducingadigitaldeed,whichistimestampedatthepointofsettlementfinality.Thiscouldactasacatalystforindustryparticipantstostreamlinethetransactionbysupportingfurtherinnovation.Withthedevelopmentofelectronicsignaturesintothedigitaldeed–whichwasnotdoneaspartoftheproject–theprototypecould,forexample,supportimprovementsin anti-moneylaundering(AML)or counterterrorismfinancing(CTF)compliancechecks. ProjectMeridianwasahighlycollaborativeeffortbetweentheBankofEngland,HMLandRegistry,theproject’svendor–Coadjute,andtheBankforInternationalSettlements(BIS)InnovationHubLondonCentre. CentralbankscanusethefindingsfromtheprojecttoinformconsiderationsonwhethertoimplementsynchronisationintheirRTGSsystems.Astheydothis,furtherexplorationofthepotentialforsynchronisationtodriveinnovationinwholesalepaymentsandsupport theemergenceofnewpaymentsinfrastructuresisneededincollaborationwithparticipantsinarangeofassetmarkets. “CentralbankscanusethefindingsfromtheprojecttoinformconsiderationsonwhethertoimplementsynchronisationintheirRTGSsystems.” Executivesummary Context Synchronisation Prototype Technology Otherassets Futureconsiderations 2ContextforProjectMeridian ProjectMeridianisajointexperimentbetweentheBISInnovationHubLondonCentrea