Blockchain Proof Of Concept Completed By SWIFT

March 9, 2018

Financial messaging provider SWIFT has successfully conducted a distributed ledger technology (DLT) proof of concept for Nostro accounts reconciliation with 34 banks. A Nostro account is a bank’s account in a foreign currency in another bank.

The proof of concept, which is based on Hyperledger Fabric v1.0 technology and has been conducted in concert with six founding banks, is part of the Swift gpi initiative to re-arm the correspondent banking system for a new age of technological disruption.

The PoC sought to answer a number of questions surrounding DLT: whether the technology, combined with SWIFT assets, would meet industry-level governance, security and data privacy requirements; whether DLT could bring concrete benefits over other architectures; and to check the technology’s current level of maturity to serve as a production-grade application within a mission-critical global infrastructure.

According to SWIFT, participating banks deployed their own node in the SWIFT DLT sandbox. PoC results showed that DLT could provide the functions needed for Nostro account reconciliation, including “real-time event handling, transaction status updates, full audit trails, visibility of expected and available balances, real-time simplified account entries confirmation, the identification of pending entries and potential related issues, and generated the data required to support regulatory reporting.”

The PoC also demonstrated the significant progress DLT has made with regards to data confidentiality, governance, security, and identification frameworks. However, it also showed that further progress is needed on the DLT technology itself before the financial industry could adopt DLT on a large scale.

For example, while 528 channels were required in the PoC to ensure Nostro accounts would only be stored on the nodes of their account servicers and owners, to productize the solution, more than 100,000 channels would need to be established and maintained, covering all existing Nostro relationships, presenting significant operational challenges.

Overall, Damien Vanderveken, Head of Research and Development at SWIFT, said the PoC went extremely well, proving the fantastic progress that has been made with DLT and the Hyperledger fabric in particular.

“The DLT sandbox enabled us to control access, to define and enforce user privileges, to physically segregate confidential data and store it only with the relevant parties while supporting a strong identity framework by linking all participants to their BIC, and having all keys signed by a SWIFT certification authority,” said Vanderveken. “Although the PoC demonstrated DLT could improve Nostro liquidity management and reconciliation processes, it also revealed that the pre-requisites will have to be met before banks can enjoy the full benefits of switching to a DLT process.”

Stephen Gilderdale, SWIFT’s Chief Platform Officer, said it is a strategic priority for SWIFT to work with new technologies like DLT and incorporate them into key solutions like gpi.

“We are already working on new PoCs and will continue our research and development (R&D) efforts to ensure that SWIFT customers will be able to leverage their existing SWIFT infrastructure and connectivity to benefit from blockchain services, whether offered by SWIFT or by third parties, on a secure and trusted platform,” said Gilderdale.

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