Forex exchange (FX) settlement giant CLS is in the final stages of testing its blockchain paymentservice for banks, Financial News reported July 27.
The service is reportedly set to be launched later this summer, with at least seven banks expected to sign on to the system in the early months.
CLS, the New York-based global multi-currency cash settlement system, has been working with tech company IBM to introduce the blockchain-powered payment netting service. The system is set to be incorporated in banking IT systems to boost the level of standardization in the global FX markets, as well as reduce costs of the process.
At the moment, the FX markets are reportedly lacking standardization as forex institutions are forced to complete the process manually, which often causes scattered approaches to netting and leads to higher costs, the Financial Times notes.
CLS is planning to offer its members two options to connect to the CLSNet service, providing a direct, as well as an intermediary, connection via the SWIFT financial messaging provider. However, a CLS spokesperson clarified that clients would rely on the SWIFT provider in the first stages, while direct node hosting will be offered as “the service continues to grow with functionality and client adoption, and the DLT [distributed ledger technology] matures.”
While around seven banks are ready to test the upcoming service, they are reportedly just half of those that backed the project originally. CLS chief strategy and development officer Alan Marquard revealed that some of their big banking members are cautious to connect directly to the blockchain since the technology is still not tested enough for settlement and safekeeping of securities.
Marquard explained that banking institutions cannot “just install a piece of software,” as they first need to “build operational knowledge and know-how” to ensure their databases have adequate privacy protection.
CLS Group, originally Continuous Linked Settlement, is a U.S. FX settlement service supplier with such high-profile members as Goldman Sachs, JPMorgan, Barclays, and Citigroup. In late May, the company invested $5 million in blockchain consortium R3 in order to collaborate with leading blockchain experts.
SWIFT, with 45 years of experience in providing financial institutions with transactions information, has recently reported that its blockchain pilot for bank-to-bank transfers went “extremely well,” having first announced the Hyperledger-based project for a cross-border payments market back in 2017.
Earlier in June, Ripple (XRP) chief cryptographer David Schwartz claimed that banks are unlikely to deploy blockchain to process international payments, citing low scalability and privacy problems.