Blockchain Can Help Automate Securities Settlements, Says Bank of Canada

It seems that blockchain technology has passed that honeymoon phase and is now becoming the catalyst behind several new ways to improve legacy operations.

The Bank of Canada, along with TMX and the non-profit Payments Canada have found that tests with blockchain technology have shown promising results when it comes to automating instantaneous securities settlements.

Those three organizations have created an integrated securities and payment settlement platform that utilizes a distributed ledger, the primary tech driving blockchain networks. Through this method, cash and assets can be tokenized to complete an instant settlement.

The latest tests are part of a program called Project Jasper, an initiative launched by all three organizations last year. The project’s main goal is to explore distributed ledger technology and focus on settling payments, and this latest announcement is phase three of the project. Right now, this is the only proof of concept that maintains privacy for market participants and their transactions, as the option to view transaction history is only offered to those involved.

“This shows that it is possible to deliver payments in a way that has never been done before–by directly swapping cash from buyers to sellers, resulting in instant settlements,” said Gerry Gaetz. He is the president and CEO of Payments Canada, the organization that strives to ensure financial transactions in Canada are secure.

“We continue to see how the application of distributed ledger technology can help extend the vision of payments innovation in Canada and potentially, one day, help promote financial market integration, both nationally and internationally.”

The main reasons a bank or government would institute a blockchain network is to save money, time or improve security. But as of right now, Bank of Canada Senior Special Director Scott Hendry believes there is no indication this new method would actually save money.

“We’re still uncertain after doing this work that there are significant savings possible for participants,” he told a payments conference in Toronto. “It’s not clear that all the participant dealers and banks are going to get a significant benefit out of this settlement system.”

In fact, some studies have shown that bringing in blockchain technology could result in a huge amount of lost fees stemming from cross-border transactions and commissions. Those don’t necessarily relate to this test on instantaneous securities settlements, but when it comes to banks looking at bringing in blockchain, they need to find ways to make it profitable.

In fact, Project Jasper is just one of the dozens of tests that major banks around the world are doing to see how the new technology could help them in one way or another. The bank of Canada is already partnering with JP Morgan to look at how blockchain can streamline origination, settlement, interest rate payments and other processes, while RBC filed a patent to use the innovative tech to create a new credit scoring platform.