HSBC and Wells Fargo Extend DLT FX Settlement to CNH

HSBC and Wells Fargo say the blockchain solution they launched in 2021 on Baton’s Core-FX solution has been expanded to include bilateral settlements for the offshore Chinese yuan (CNH).

This marks the fifth currency to be settled between the two banks using a shared settlement ledger that currently encompasses the US and Canadian dollars, sterling, and the euro. Since launching the shared DLT solution, the two banks have settled over $200 billion in transactions. They say they plan to add additional currencies over the coming months.

The shared, private ledger is managed by joint operations teams at HSBC and Wells Fargo with full visibility by each of the parties to the relevant FX settlement, along with shared FX transaction records. The platform is governed under the framework of an agreed rulebook that facilitates efficient netting and settlement of FX transactions between HSBC and Wells Fargo in EUR, GBP, CAD, USD and now CNH. Participants in the network are only privy to transactions in which they are a counterparty.

“We are pleased to expand the capabilities of the platform to include CNH, allowing us to reduce risk in the payment settlement process,” says Vince Hindman, global head of Rates and FX solutions, Wells Fargo Corporate & Investment Bank. “The collaboration shows that we can pursue innovative technologies and apply them in a way that enhances our existing infrastructure and ultimately benefits our clients.”

Mark Williamson, global head of FX partnerships and propositions at HSBC, adds, “Extending CNH PvP settlement to Wells Fargo is an important milestone for reducing Herstatt Risk outside G10 currencies. This development is only our first step in extending our coverage into emerging markets currencies.”

The platform runs on Baton Systems’ proprietary distributed ledger technology and is governed by the Baton rulebook. The platform enables participants to efficiently settle bilateral cross-border obligations across multiple onshore and offshore currencies, coupled with the added flexibility of extended settlement windows to optimise PvP risk reduction opportunities.

The move is significant because, as the world’s fifth most-traded currency, the Chinese renminbi represents probably the largest single area of settlement risk – a point made by Jerome Kemp, president of Baton Systems. “The growing significance of Chinese renminbi on the international stage can’t be underestimated – it was on one side of 7% of all trades in 2022,” he says. “These are trades where the market had no choice but to settle with potentially significant counterparty risk exposure. This development changes everything – going forward all counterparties now have the opportunity to settle offshore yuan on a riskless basis.”

Arjun Jayaram, CEO and Founder of Baton Systems, adds, “Today’s announcement marks a historic breakthrough. By deploying operationally resilient solutions, able to seamlessly interoperate with a bank’s existing payment gateways and processes, we have been able to operationalise the benefits of blockchain to deliver a world first by using DLT specifically designed to meet the capital market’s extensive compliance requirements.

“The addition of CNH demonstrates the ease and speed that PvP access can be extended across currencies, empowering firms to radically reduce settlement risk exposure fast,” he continues. “Whilst today’s announcement is a remarkable achievement, it is just the beginning.”