Fnality and Finteum Complete Cross Chain FX Settlement

Fintechs Fnality and Finteum have announced the completion of a successful proof of concept (POC) involving what they say is the first test of FX settlement transactions on a payment-versus-payment (PvP) basis.

The settlement took place across the Finteum Platform, and two Fnality payment systems, representing two currencies, in under 10 seconds.

Finteum joined the Ecosystem TestNet – built in partnership with Adhara – and completed testing of the interoperability of the systems, which it says successfully demonstrates interoperability and the ability to settle intraday FX swaps in a matter of seconds.

The transactions were triggered by Finteum’s platform, which is built on R3’s Corda Protocol, and settled on a PvP basis through two payment systems, each representing the two different currencies (GBP and USD). Settlement status information then was communicated back to the Finteum platform dashboard, proving that interoperability can be achieved in both directions between Corda and Enterprise Ethereum.

Connecting to the Ecosystem TestNet, Finteum says it was able to prove that when two large banks agree to execute an T+0 intraday FX swap with each other, an instruction can be communicated successfully to the payment systems, and both the near and far leg of the transaction can be settled quickly. Based on Finteum’s testing, it says the average time for four test transactions executed in quick succession was under 10 seconds.

Finteum and Fnality previously conducted the first successful interoperability test in 2019, but say this latest test conducted through TestNet was designed to simulate conditions that reflect the desired end state in a live environment. “Given these promising results, the Fnality and Finteum teams are now confident that the two systems will also be interoperable once they go into production,” the firms say.

Three large banks have committed to go live with the Finteum Platform for intraday FX swaps in EUR, GBP and USD in Q2-Q3 2023. Depending on the speed of currencies going live in the payment systems following regulatory reviews, these transactions may need to initially settle outside. In the event that the transactions will initially settle outside of the payment systems, migrating the transactions to PvP settlement in them will reduce settlement risk for the financial system, the firms add.

“The Finteum client banks’ first preference is to settle these transactions on a PvP basis in the Fnality payment systems, which aligns with the goal of the CPMI to increase PvP usage. The Finteum team hopes that central banks and regulators will be able to find time to prioritise the review of [these systems], so that systemic risk can be minimised.”

Rhomaios Ram, CEO at Fnality International, adds, “This PvP PoC is a significant step for Fnality as it proves that once the Fnality payment system is live in a second jurisdiction, participants will be able to swap and atomically settle funds from their home currency to another currency and vice versa in a matter of seconds.”

Meanwhile, Peter Left, head of prudential liquidity management at Lloyds Bank, says, “Cross-chain payment versus payment FX dramatically reduces settlement and credit risks. Having trades agreed on an intraday trading platform and be indivisibly settled in near real-time across two Fnality Payment Systems will help significantly reduce liquidity costs across the industry.”