Fnality announced it is partnering with the Depository Trust & Clearing Corporation (DTCC) to potentially include its wholesale settlement system as a payment rail in the DTCC Digital Launchpad, the DTCC’s digital asset sandbox.
The DTCC runs the world’s largest post trade settlement infrastructure processing $3 quadrillion in annual transactions. Fnality is backed by 20 global institutions, including the DTCC, and provides the Fnality wholesale payments system (FnPS), which facilitates the on-chain settlement of central bank reserves for institutional purposes. So far it is live in Sterling, with a US dollar version currently a work in progress.
The availability of cash on chain is critical to enabling the full efficiencies of on-chain delivery versus payment (DvP) and payment versus payment (PvP). Institutions favor central bank money to minimize risk, which Fnality can provide.
DTCC’s Great Collateral Experiment
The collaboration follows a recent large scale simulation, the DTCC’s Great Collateral Experiment, in preparation for the DTCC’s tokenized collateral platform. Fnality participated using its test network providing both dollar and sterling versions for this simulation. However, the current collaboration involves the £FnPS, given that’s in production. The testing process showcased the practical mechanics of institutional tokenized settlement.
Fnality described the simulated transactions as involving, “earmarking funds in the Fnality testing environment, onboarding the investor’s account onto DTCC’s ledger, and executing a PvP test transaction that settled instantly.” It used Adhara’s DC Commander to integrate with the bank back office systems. Ownera’s FinP2P was used for routing transactions between separate DLT systems for DvP.
“Our collaboration with DTCC goes back to 2023, when we jointly demonstrated a DLT-based model for atomic, real-time DvP settlement,” said Michelle Neal, CEO at Fnality International. “This collaboration has expanded to DTCC’s Digital Launchpad initiative and demonstrates how an on-chain representation of central bank reserves can unlock the full value of institutional tokenized assets. This is a critical step towards realizing our vision for frictionless, 24/7 wholesale financial markets, where tokenized assets can move instantly, securely and with finality.”
While this collaboration advances, Fnality is simultaneously working to establish its US operations. That’s all the more relevant given the DTCC’s dominance in US post trade.
Fnality’s US plans
We previously reported that Fnality Bank US had applied for a state banking license in Connecticut. In April it received an 18-month interim approval as a state chartered innovation bank. A Fnality spokesperson told Ledger Insights via email that the prerequisite to launching the $FnPS involves pre-opening reviews and examinations with the Connecticut Department of Banking. Despite the 18-month timescale, “the Fnality team is working to progress this work as quickly as is reasonable (subject to regulatory approvals).”
However, competition in this space is intensifying. The DTCC itself is reported to be exploring the possibility of launching a stablecoin. The Senate Genius Act for stablecoins (yet to be passed) supports banks using central bank reserves, similar to Fnality’s model. And the DTCC has a subsidiary, DTC, with a New York banking charter and access to central bank reserves. That said, Fnality has already developed the solution.
In the UK, Fnality has an omnibus account at the Bank of England with participants limited to members of the Bank’s sterling payments system, in line with the central bank’s policy. Hypothetically, if Fnality adopted the Genius act model in the US, then $FnPS could be available to institutions that don’t have central bank access. We asked Fnality about this path, and the spokesperson responded, that “Fnality continues to assess the rapidly evolving landscape, and does not have an official position at this stage.”
Either way, within the next 18 months there’s a reasonable chance that tokenized central bank money will be available to institutions in the United States.
