07.24.2018

Bank of England: Supporting DLT Settlement Models

The Bank has completed a Proof of Concept (PoC) to understand how a renewed RTGS service could be capable of supporting settlement in systems operating on innovative payment technologies.

On 27 March 2018 the Bank announced that it was running a Proof of Concept (POC) with Baton Systems (Baton), Clearmatics Technologies Ltd (Clearmatics), R3 and Token.

The purpose was to understand how a renewed RTGS service could be capable of supporting settlement in systems operating on innovative payment technologies, such as those built on Distributed Ledger Technology (DLT).

Full outcomes of that work are summarised in this document.:

Limitations identified

Some participants asked whether the renewed RTGS service could have a more flexible approach to account structure to cater to new settlement models being developed. For example, one participant highlighted a preference to operate through a single-account structure, rather than settling through a separate account for each member. Under this model, members would fund (or defund) a single account dedicated to the scheme, increasing (or decreasing) the amount of central bank money in that account. Transfer of fund ownership would occur on the scheme’s systems, with the scheme maintaining the record of ownership of funds within the single account.

Two participants used an intermediary interface to settle over RTGS. The interface was designed to fulfil some actions not provided by the cloud RTGS functionality, including translating messages between RTGS and the participant’s system, and providing proof of transfer of funds. Participants noted that this setup reintroduced some of the problems that innovative technologies are looking to solve: in particular, the existence of unnecessary points of trust and failure in the network.

This issue could potentially be mitigated if the RTGS service was capable of supplying a cryptographic proof. Participants also highlighted the importance of continued engagement with Fintech firms, noting the need for the Bank to continue to keep pace with developments in technology and payment system innovation.

How the Renewal Programme has been informed by the proof of concept:

Based on feedback from the POC the RTGS Renewal Programme will:

• Consider how different account structures, including a single-account structure, could be used in the renewed RTGS service. The account structure influences legal and regulatory treatment of funds, as well as how a payment system is structured.

• Investigate whether the renewed RTGS service can provide and consume acceptable forms of cryptographic proofs. This is not intended to be available in an early phase of the Programme, but the Bank will investigate how cryptographic proofs could fit into the design of RTGS architecture. The Bank will monitor changes in methodologies and evolving technology for cryptographic proofs.

• Continue to engage with Fintech firms throughout the life of the programme to maintain an understanding of how technology developments and approaches to payment systems will change the demands on RTGS.

Source: Bank of England

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