CLS and IBM, after announcing a collaboration, aim to foster an ecosystem for financial institutions, FinTechs and software providers – to be called LedgerConnect. The idea is to share apps and services on a common DLT (blockchain) network and a managed platform which will provide access to DLT-based services for financial processes on a single, secured network.
Commenting on LedgerConnect, Alan Marquard, Chief Strategy and Development Officer, CLS said, “LedgerConnect is part of CLS’s strategy to explore how we can provide safe and robust solutions that create efficiencies and reduce risk for a diverse range of firms operating in the financial markets. We expect LedgerConnect to deliver enhanced efficiencies and economies of scale over single-purpose distributed ledger networks.”
CLS is a market infrastructure group delivering settlement, processing and data solutions. CLS claims to “help clients navigate the changing FX marketplace – reducing risk and creating efficiencies”. Its network and market intelligence enable CLS specialists to develop standardized solutions which address existing market problems in order to make trading processes faster, easier, safer and more cost-effective.
CLS has a membership roster which includes:
- Banco Santander
- BNP Paribas
- Credit Suisse
- Deutsche Bank
- Standard Bank
- Bank of America
- Goldman Sachs
- JP Morgan
- Wells Fargo
- State Street
- Bank of China.
Nine financial institutions, including Barclays and Citi, are participating in the PoC. The PoC will use selected services from Baton Systems, Calypso, Copp Clark, IBM, MPhasis, OpenRisk, SynSwap and Persistent Systems.
IBM is well known as a blockchain player. It bases much of its approach around the Linux Foundation Hyperledger project as well its IBM Blockchain Platform.
Using LedgerConnect financial institutions will be able to access services in areas such as:
- Know Your Customer (KYC)
- sanctions screening
- collateral management
- derivative post-trade processing and reconciliation
- market data.
By hosting these services on a single, enterprise-grade network, participating organisations can switch to focus on business objectives rather than application development. The theory is this will realise operational efficiencies and cost savings across asset classes over time.
As financial institutions increasingly work to implement DLT within their operations, capital markets:
- remain saturated with multiple systems
- often perform the same business functions
- retain silos of data which require expensive reconciliation processes.
IBM and CLS believe DLT can reduce these inefficiencies and improve the speed of doing business. The mechanism is to provide:
- a single, shared version of events
- one implementation of common business functions.
The rationale and implementation
For most financial institutions it is costly and time-consuming for each vendor (whether bank or consortium) to create and operate its own unique DLT infrastructure. LedgerConnect aims to solve this with a single shared and highly secured network on which multiple services can be deployed and consumed. The hope is this will enable financial institutions to focus on transforming business processes rather than creating multiple new blockchain applications, networks and services in silos that could lead to increased interoperability costs and complexity.
LedgerConnect will operate on a private permissioned network based on the IBM Blockchain Platform and Hyperledger Fabric technology. The design of LedgerConnect will be for regulated and security-conscious enterprises. It will be available across asset classes. On completion of a successful PoC, generation of market demand, and receipt of all necessary regulatory approvals, CLS and IBM plan to make the platform widely available to the industry.
Support for additional ledger technologies may be provided in the future. This will depend on market demand and developments.
“Together IBM and CLS have been early pioneers in advancing blockchain solutions for the financial services space,” said Marie Wieck, general manager, IBM Blockchain. “Building on the success of CLSNet and leveraging the strong relationship CLS has with the world’s leading financial institutions, LedgerConnect is uniquely positioned as a blockchain marketplace for the financial services industry, which will accelerate innovation across the ecosystem with value added services for blockchain networks.”
Enterprise Times: what does it mean
Though not yet proven (it is a PoC after all), perhaps LedgerConnect was inevitable. The key lies in the words above: “As financial institutions increasingly work to implement DLT within their operations, capital markets remain saturated with multiple systems, often perform the same business functions (and) retain silos of data which require expensive reconciliation processes”. Most financial institutions have as an objective the reduction of back-office costs and infrastructure. This could offer one way forward.
At the same time look more broadly. Enterprise Times has commented before on the InterLedger Protocol (ILP) and its potential. The major difference, on one analysis, is that ILP is open whereas LedgerConnect can only be viewed as closed. Many will regard this as desirable,or inevitable, when monies are a factor.
Though IBM and CLS will not be worrying about these as yet, there are also:
- monopoly/antitrust considerations; if all the CLS members participated in LedgerConnect this would force questions
- operational issues; what happens if LedgerConnect stumbles one day (it could ascend into the ranks of a systemically important financial institution in its own right).