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R3 Launches Universal Settler Application to Facilitate Global Payments on Corda; XRP the first settlement mechanism
Corda Settler Built to Ensure Seamless Settlement of Payments on Corda across any payment scheme

New York / London / San Francisco (5 Dec 18) – R3, the world’s leading developer of enterprise blockchain solutions for business, today launched its new Corda Settler, an application purpose-built to allow for payment obligations raised on the Corda blockchain platform to be made through any of the world’s payment systems, both traditional and blockchain-based. XRP is the first globally recognized cryptocurrency to be supported by the Settler, bringing the Corda and XRP ecosystems into closer alignment.

The Corda Settler is an open source CorDapp that allows payment obligations arising on the Corda Network to be settled via any parallel rail supporting cryptocurrencies or other crypto assets, and any traditional rail capable of providing cryptographic proof of settlement. Uniquely, the Corda Settler will verify that the beneficiary’s account was credited with the expected payment, automatically updating the Corda ledger. In the next phase of development, the Settler will support domestic deferred net settlement and real-time gross settlement payments.

“The deployment of the Corda Settler and its support for XRP as the first settlement mechanism is an important step in showing how the powerful ecosystems cultivated by two of the of the world’s most influential crypto and blockchain communities can work together,” said Richard Gendal Brown, Chief Technology Officer at R3. “While the Settler will be open to all forms of crypto and traditional assets, this demonstration with XRP is the next logical step in showing how widespread acceptance and use of digital assets to transfer value and make payments can be achieved.”

When a payment obligation arises on Corda during the course of business, one party now has the option to request settlement using XRP. The other party can be notified that settlement in XRP has been requested and that they must instruct a payment to the required address before the specified deadline. Once an oracle service validates the payment has been made then both parties can treat the obligation as settled.

R3 is an enterprise blockchain software firm working with a broad ecosystem of more than 200 members and partners across multiple industries from both the private and public sectors to develop on Corda, its open-source blockchain platform, and Corda Enterprise, a commercial version of Corda for enterprise usage. R3’s global team of over 180 professionals in 13 countries is supported by over 2,000 technology, financial, and legal experts drawn from its global member base. R3 is backed by investment of over USD 120 million from more than 45 firms. The Corda platform is already being used in industries from financial services to healthcare, shipping, insurance and more. It records, manages and executes institutions’ financial agreements in perfect synchrony with their peers, creating a world of frictionless commerce. https://www.r3.com

Corda Settler is an open-source CorDapp to help Corda users settle transactions. Corda Settler provides a bridge to any payment rail that can return a cryptographic proof of settlement. This includes any ‘traditional’ domestic and cross border payment systems able to return such a proof, as well as blockchain and cryptocurrency-based rails.

Check out a nontechnical explainer by R3’s David Nicol and a code review of the Settler by R3’s Roger Willis below.

Press Release

3rd December, 2018 (New York/London/Singapore)– Enterprise blockchain software firm, R3, today announced that 14 French corporates have completed a trial of the CordaKYC application built on the Corda blockchain platform and hosted on Microsoft Azure.

Working closely with the Association Française des Tresoriers d’Enterprise (AFTE), a total of 26 firms participated in the regional trial. French corporates across industries as diverse as department stores, food processing, pharmaceuticals, insurers, investment managers and aerospace, collaborated with 5 French banks to test the CordaKYC solution.

Participants included AFTE, Allianz France Insurance Company, Alten, BNP Paribas, bioMérieux, Crédit Agricole CIB, Daher, Danone, Engie, Natixis, Natixis Assurances, Natixis Investment Managers, Ostrum AM, Pierre et Vacances, RCI Bank and Services, and Societe Generale.

Using a Synechron prototype, corporates were able to simulate KYC requests amongst the group. The banks could request access to KYC test data, and corporates had the ability to approve requests and revoke access. Corporates were also able to update their test data which was then automatically updated for all participants with permission to access it.

David E. Rutter, CEO of R3, said, “Existing KYC processes are often duplicative and time-consuming, and there has been increasing demand for blockchain-based KYC solutions. However, it is critical that we gather feedback and input from across a variety of participants. Corporates in particular have an important role to play in helping the industry evolve and adopt this technology for KYC, and the success of this trial demonstrates the benefits they stand to gain and builds a foundation for regional adoption.

“Corda is the ideal platform for KYC solutions as it enables users to have full control over their data, safe in the knowledge that it won’t be shared with other parties unless they have given their express permission, and they have the ability to revoke that permission at any time.”

Ignacio Sánchez-Miret, Chairman of AFTE Fintech Commission, comments: “The CorDapp trial achieved two goals: firstly to bridge the gap and demystify blockchain for corporates, and secondly to bring together banks, insurers and corporates to work together at the same level. We cannot stop here – the following weeks will be crucial to determine which applications will be launched together. This is a tough call, but it is clear: collaborate or be left behind.”

Renaud-Franck Falce, Head of Capital Markets EMEA at BNP Paribas, comments: “Participating to such an initiative allows key players to develop further practical experience in deploying and running blockchain infrastructures for tangible applications. In this specific instance, we operated alongside both issuer and investor clients via real time workflows and interfaces facilitating and expediting the KYC process.”

Gabriel Raffour, Innovation Project manager for Daher explains that “the user experience on the CordaKYC application tested is great and I am not from the finance world. The Blockchain part is so well integrated that it’s invisible to the user and that’s the first step towards adoption. Keep it simple!”

Frédéric Dalibard, Head of Digital for Natixis CIB comments: “The Corda KYC trial has demonstrated the applicability and relevance of R3’s Distributed Ledger Technology for the implementation of a Self Sovereign Identity model. By providing natively data and document management capabilities Corda has allowed the Corporates involved in the experiment to share, update and revoke access to KYC-like data and documents easily, securely and with full auditability. Natixis is looking forward to pushing the concept further with its partners in the near future.”

Eric Le Roux, KYC Transformation Team at Societe Generale, comments: “It was a valuable experience to have French banks, insurers and corporates working together for a more efficient KYC process. For Societe Generale, the Corda trial has perfectly demonstrated the interest of joining forces in the compliance field and of leveraging blockchain to develop effective solutions.”

R3’s global team of over 180 professionals in 13 countries is supported by over 2,000 technology, financial, and legal experts drawn from its global member base.

The Corda platform is already being used in industries from financial services to healthcare, shipping, insurance and more. It records, manages and executes institutions’ financial agreements in perfect synchrony with their peers, creating a world of frictionless commerce.

A Blog based on the paper, “Building Blocks for Better Compliance: Can Blockchain Decrease the Burden of Financial Regulations?,” available here.

Key Take-Aways:
• Financial institutions must report hundreds of data fields for every transaction they partake in.
• Reporting requirements necessitate complex data consolidation from multiple internal sources and external counterparties.
• Blockchain architectures simplify the consolidation process and may disintermediate data reporting service providers.

$1.28 per a line of incorrect or non-reported data
That’s how much financial institutions are fined by the Financial Conduct Authority (FCA) for non-compliance with transaction reporting requirements. Now, consider the millions of transactions taking place every day for thousands of different instruments on hundreds of trading venues.

Within the E.U., each transaction needs to report 65 data fields under MiFID II alone. Take into account EMIR and REMIT, and the number of reporting fields per a transaction reaches into the hundreds.

With all this data, it’s easy to see how numerous small errors can proliferate into enormous fines.
For example, in 2017 Merrill Lynch was fined £34.5 million by the FCA for incorrectly reporting 68.5 million derivative transactions. But this isn’t the first time the bank has penalized. In 2015, Merrill Lynch was fined £13.3 million by the FCA for incorrectly reporting 35 million transactions.

Compliance costs and penalties can only be expected to continue to increase unless a new approach to regulation is adopted. Blockchain may be this transformative approach.

Why Are There So Many Errors?
Accurately collecting and reporting all the necessary transaction data is by no means an easy task. Not only do firms need to consolidate their own internal data, they also need to supplement it with data from the transaction’s counterparty. To understand the scope of just one regulation, Figure 1 shows MiFID II’s 65 transaction reporting fields and their respective data source.

Beyond the sheer volume of reporting fields scattered amongst multiple parties, firms struggle to consolidate their own data. As financial institutions grow both organically and through acquisition, multiple autonomous technological systems host business processes. And these various systems may record the relevant reporting data in disparate way. The systems’ inability to interoperate leads data to become siloed within each autonomous framework. Attempts to bridge the gaps usually involve costly manual reconciliation processes and additional layers of software systems.

What’s the Current Approach to Compliance?
Specifically for MiFID II, financial institutions have employed Approved Reporting Mechanisms (ARMs). ARMs are third-party entities who are authorized to provide transaction reporting details on behalf of an investment firm. They’re the MiFID II equivalent of trade repositories under EMIR.

But while ARMs may appear to reduce a firm’s burden of transaction reporting, a significant portion of the work is still placed onto the firm itself. A financial firm still needs to provide the ARM with a single output of all the aggregated data in which they have ownership of. The same issues of internal firm data consolidation resurface.

Furthermore, ARMs are ultimately a quick-fix to the latest regulation of MiFID II. When newer regulation comes into force, additional internal and external systems will be needed. Another data reporting service, analogous to an ARM, will most likely be implemented.

Is Blockchain Really a Solution?
Enterprise blockchains can address many of the challenges currently incurred due to transaction reporting requirements. It provides a systemic approach both to internal and external data consolidation. And if implemented with the right platforms and infrastructures, blockchain may even disintermediate third-party data reporting services providers like ARMs.

Blockchains enable data to be accurately and immutably disseminated to multiple parties and stored within their own records. As a transaction passes from one participating party to another for digital signature, each entity can add their relevant reporting information. In the case of R3’s Corda, this information is then sent to each entity that has been permissioned to view it. If all transaction parties have access to all the relevant reporting information, there is no need for an ARM.

Consolidation of internal reporting data may also be solved by adopting blockchain technology. Data no longer needs to flow through multiple layers of in-house systems and manual processes in attempt to create a complete view. A firm’s transactions and corresponding information could be consolidated into the institution’s blockchain ledger. Again, all of this is done in an accurate and immutable way, eliminating the need for manual reconciliation processes.

Regulatory compliance applications are already being built. Project Maison, was part of the FCA’s BARAC initiative to explore the automation of regulation and compliance on blockchain technologies. The successful pilot delivered a near real-time method for mortgage transaction reporting, lowering the costs of regulatory compliance while greatly reducing data inconsistencies and manual intervention.

Away from the mania of last year’s ICO gold-rush, the appeal and benefits of raising capital by issuing debt and equity on a blockchain-enabled marketplace has struck a chord in the institutional financial services world. As momentum builds among some of the biggest names in finance, we will soon see properly regulated tokens, fit for real businesses and sovereign entities, writes R3’s Todd McDonald.

2017 saw a huge boom in companies raising money by issuing their own digital currencies, a process that has become known as an initial coin offering, or ICO. Holders of these coins, or ‘tokens’ are then able to freely trade them on online crypto exchanges.

ICO activity skyrocketed almost overnight, and by the end of 2017 start-ups had managed to raise a total of more than $5.6 billion[1]. Not bad for a market that barely existed a year earlier.

The potential for quick returns attracted a lot of investors, especially inexperienced retail investors spurred on by stories of crypto-millionaires. As might be expected, the risks associated with these investments were not always fully understood. There have been countless instances of scams[2], fraud[3]or outright Ponzi schemes[4], which would be seen as comical except for the fact that it put ‘other people’s money’ clearly at risk[5].

Unsurprisingly, the amount of money pouring into the sector means regulators are appropriately increasing focus on token issuance projects, particularly in the United States[6]. This, combined with a steep decline in deployable money from cryptocurrency speculation, has led to a clear cooling off period for ICOs[7].

However, the benefits of a decentralized issuance and transaction marketplace and smart securities contracts have clearly captured the attention of institutional players. 2018 has seen increased focus on security tokens, which offer the promise of spurring a new, lower friction method of asset and capital formation. These ‘enterprise-ready tokens,’ if developed appropriately, could automate or simplify much of the asset origination, issuance, execution, and secondary trading processes that make up so much of investment banking fees today. Issuers of securities everywhere see the value in a more efficient, effective connection to those looking to allocate capital, all in a safe, regulated and automated environment.

If bitcoin represented the first blockchain revolution and the emergence of enterprise blockchain platforms represented the second, the creation of a new global capital market powered by enterprise security tokens will usher in the third.

The first instances of these new enterprise token will likely focus on what is called asset-backed tokens. Put simply, the digital token represents an asset that is held ‘somewhere else,’ often at a regulated custodian. The token acts as a ‘digital twin’ and can be traded or exchanged freely on a blockchain with settlement finality, while the underlying asset remains blissfully in place at a custodian.

This interplay of a regulated custodian linked with an on-chain digital representation, while seemingly straightforward, unlocks new ways for markets to transact and expand. It offers a way for businesses to begin to iterate and implement enterprise-friendly yet novel digital assets, all from a strong foundation of an accepted regulatory base.

Both emerging and established financial infrastructure players are currently developing solutions to enable the issuance and secondary trading of these asset-backed tokens.

If tokens are to become credible and useful instruments in the institutional world, the quality and type of investor they are able to attract must also be considered. For example, when companies embark on a capital raise, whether it is a Reg D placement or full blown IPO, they (and their investment bank partners) seek ‘strong-hand’ investors – those that aren’t in it just for a quick profit.

The same will apply in the future for companies issuing their debt or equity as tokens, and as such they will seek out platforms that give them access and distribution to a buy-side of proven investors.

R3 is uniquely positioned to facilitate the emerging ‘token economy’ in a secure and regulated manner. The same enterprise-ready focus that led to the design and capabilities of our Corda platform can be extended to bringing the best innovations of the ‘wild west’ of the token world to the enterprise.

Corda was designed from inception to solve the problem of how to represent real-world agreements on a blockchain in a canonical and enforceable way, and this approach can be directly applied to security token issuance. Financial agreements on Corda take the form of smart contracts, linking business logic and data to associated legal prose in order to ensure that trades executed on the platform are rooted firmly in law.

Other key considerations for security token issuance, such as identity, security, data privacy and settlement finality, are already handled elegantly by Corda and have been key drivers in securing its position as the blockchain platform of choice in capital markets.

Corda-based token examples actually emerged back in 2016, when we began a collaboration with Bank of Canada, Payments Canada and others under the name Project Jasper, where a token called CAD-COIN[8] represented collateral held by the central bank. Since then, we have seen pilot and production examples from our partners, in particular from HQLA^xin securities lending and Tradewind Markets in gold trading.

Connectivity with the established financial services community also differentiates Corda from any other platform in the space. R3 is already in talks with a number of major market infrastructure providers about creating regulated environments for security tokens, underpinned by Corda, and the 200+ member ecosystem includes most of the biggest names in financial services, giving token issuers access to a vast network of high quality investors. Corporates, banks, asset managers, and market infrastructure providers are also crowding in to provide a stable, regulated settlement asset on Corda. Corda’s unique design supports delivery of digital security tokens against payment in digital cash instruments in a single, atomic transaction. This will reduce time, cost, and perhaps most importantly, risk in the emerging token-enabled credit market on Corda.

Platforms like Corda provide the catalyst and foundation to enable security tokens to become a new and potentially invaluable tool in the capital markets toolbox. Unregulated ICOs provided the inspiration for this next wave, yet the shift is already underway to make tokens enterprise-grade. The third blockchain revolution of digital assets will arguably be the most important and impactful to date.

[2]https://www.coindesk.com/atb-coin-the-latest-to-face-class-action-suit-after-ico/

[3]https://www.coindesk.com/class-action-suit-targets-ico-promoted-floyd-mayweather-jr/

[4]https://thenextweb.com/hardfork/2018/01/17/bitconnect-bitcoin-scam-cryptocurrency/

[5]https://www.theverge.com/tldr/2018/3/12/17108852/john-oliver-explaining-bitcoin-cryptocurrency-blockchain-watch-this

[7]https://www.bloomberg.com/news/articles/2018-09-10/crypto-ico-funding-dropped-in-august-to-lowest-in-16-months

[8]https://www.bankofcanada.ca/wp-content/uploads/2017/05/fsr-june-2017-chapman.pdf

By: Aaron Seabrook, Director at R3, to find out more, please contact Voltron@R3.com

Backed by eight major banks, with the potential to unleash USD 1 trillion in trade, the Voltron project is being heralded as a major leap forward for the trade finance process.

As blockchain for business moves into production, corporates must now make the decision now whether to be a leader or a follower.

R3’s Aaron Seabrook explores how blockchain is simplifying letters of credit and outlines how Voltron is set to revolutionise trade finance, delivering anopen industry platform for letters or credit, enabling exchange documents and value across an open network.

Letters of credit are changing for the first time in centuries. This presents wide-ranging implications for the businesses that use them: shorter settlement times, instant discrepancy resolution, simplified sanctions screening. Firms must make the strategic choice now to lead the innovation or follow the crowd and risk being left behind.

Every growing global business needs finance. In 2017 alone, USD 15.5 trillion of merchandise exports were transported around the world across sea, air, rail and road, and as much as 80% of this global trade required financing.

Traditional technology required corporates to log into multiple portals, and juggle relationships and documentation for each shipment. In addition, businesses must navigate the growing threat of cyber-attacks, regulatory burdens, increasingly sophisticated fraudsters and ever-changing sanctions lists. Despite this complexity, cumbersome and time-consuming paper-based processes are still commonplace.

Many in the industry were convinced that digitisation would be a silver bullet for some of the major challenges in trade financing. And while it is true that digitisation has changed the way individual businesses in trade finance process information, these benefits have not scaled into a globally connected network.

In today’s environment, each party still maintains its own proprietary source of information, and so digital documentation needs to be checked and re-entered at every step of the process. This is not an easy problem to fix. Trade finance is inherently decentralised and trying to force centralised architecture upon it is akin to trying to fit a square peg into a round hole. Having many different centralised digital systems globally has simply created localised data centers that do not interoperate with a broader network.

It is clear that digital improvements to non-digital infrastructure can only go so far. Fundamental reorganisation of the entire system is required to change trade finance enough to address the challenges shared by businesses across the globe. This is where blockchain comes in.

In February 2018, R3’s blockchain platform, Corda, was used to issue a letter of credit on behalf of US food and agriculture firm Cargill, facilitating a bulk shipment of soybean meal from Argentina to Malaysia. The blockchain-based transaction was performed in 24 hours. This is an enormous leap in efficiency over the usual five-to-10 days it takes to complete such exchanges through existing systems. This dramatic improvement in turnaround time could unlock significant liquidity for businesses.

This was the first public live transaction of the Voltron app for letters of credit. Most importantly, it demonstrated that blockchain could create a streamlined system for letters of credit. Blockchain-based LCs are building a future where each business has a single channel to connect to their trading partners across multiple networks and different technology solutions.

The transaction illustrated two important features of the Corda platform. First, the need for reconciliation of paper or digital records is completely removed by Corda because all parties are linked on the platform and updates are instantaneous. Second, privacy is locked in. Unlike public blockchain platforms, Corda only sends data to those who have a “need to know.” This unique feature emerged from the requirements of financial institutions which need to ensure the confidentiality of trades and agreements while also capturing the benefits of a shared distributed ledger infrastructure.

This approach to data privacy and reconciliation is groundbreaking in the blockchain space, and has been a major driver for Corda’s increasingly widespread adoption in trade finance. Building upon the live transaction with Cargill, the Voltron initiative has now launched open industry platform, corporate customer pilot programme and technology partner programme on the Corda Network. Furthermore, the ecosystem of partners connected to the Voltron app on Corda continues to grow, and we are rapidly moving ahead with taking the solution to market.

The Voltron ecosystem is growing as leading technology providers within the trade finance space connect into it. These firms bring with them their existing networks of carriers, freight forwarders and other trade facilitators to the app. This new model provides legal enforceability and greater digitisation across business networks on Corda, addressing the challenge of today’s digital islands bridged by paper-based processes.

By deploying Corda, corporates gain access to a single, simplified channel to connect with their trade partners across multiple networks and different technology solutions. Legally enforceable title documents can flow across organizations, technology platforms and business networks, reducing the time for documents in transit, without the need for all parties to be on a single platform. This allows for faster presentations and shortens the working capital cycles for corporates to a greater degree than existing solutions.

Technology providers are also getting involved. Cost and ease of integration remains critical for corporates and banks. Recognising this, Voltron is piloting a program with a number of corporates, trade platform vendors, ERP suppliers and other ecosystem participants, who will embed Voltron functionality and network connectivity into their existing solutions.

Reducing adoption cost and complexity is fundamental to our strategy, and our goal is to ensure the adoption of Voltron on Corda is as easy as a simple product upgrade and is complementary to existing solutions.

The emergence of blockchain technology is a watershed moment for trade finance, offering an innovative solution uniquely equipped to tackle the nuances and complexities of the industry.

It’s simple. Corporates invariably rely on a combination of paper, fax, email and multiple digital solutions, creating complicated processes with any number of opportunities for errors to be introduced. Blockchain can reduce inefficiencies in trade and supply chains enabling faster verification and reconciliation of records, and the mutualisation of costs to automate trade finance workflows through smart contracts.

Blockchain technology is quickly becoming a reality in trade finance, and businesses must act now to ensure they’re not left behind. For corporates using open industry platforms like Voltron, trade finance will become safer, faster and more secure.

R3’s Corda has been leading the pack in trade finance since its inception and we firmly believe that this technology will ultimately make trade finance more inclusive and available to businesses of all sizes and in all regions. Firms must act now to embrace this once in a generation opportunity to lead the trade finance blockchain revolution.

2018 will be remembered as the year enterprise blockchain technology came of age. Businesses of all sizes across the world, in sectors as diverse as financial services, healthcare and logistics, are now actively using blockchain in live deployment as you read these words. And thousands more are continuing to explore its application for use cases we never could have imagined just two or three years ago. The adoption of this technology to rewire the way the world does business is now an inevitability, and while the timing will depend on the market and sector, the trajectory is clear.

The speed and scale of blockchain adoption has been remarkable. The level of interest, airtime and pace of growth it has experienced is usually reserved for primetime consumer-facing technologies and platforms such as the iPhone or Instagram. The history of enterprise technology has shown it can be as game-changing as consumer technology in the long run, but more often than not it remains behind the scenes and adoption rates are far more conservative.

This is categorically not the case in blockchain. A recent survey of 1,000 companies across seven countries found that 34% already had a blockchain system in production today, while another 41% expected to deploy a blockchain application within the next 12 months. In addition, nearly 40% of the surveyed companies reported they would invest USD 5 million or more in blockchain in the coming year.[1]These numbers are even more impressive when you consider blockchain is only considered to have entered mainstream consciousness in the business world in 2015.

For those of us that have witnessed the growth of blockchain first hand, this comes as no surprise. The potential for this technology to improve the efficiency, transparency, speed and security of the way money and goods flow around the globe is vast and virtually unparalleled, but it was clear from the outset to R3 and the thousands of coders, business leaders and cross-industry professionals that make up our ecosystem.

Fast forward to today and we are now seeing widespread community adoption of Corda, our open source blockchain platform, and have recently launched Corda Enterprise, the commercial distribution of Corda. We are immensely proud to have played a role in the enterprise blockchain revolution since Day One, and to have delivered the vision we’ve shared with our ecosystem from the beginning: to build a robust, new blockchain-based system that enhances the way global business is conducted.

Development on Corda and Corda Enterprise is happening now, with many live apps in production, and hundreds of firms and thousands of technologists engaged as part of the R3 community to solve a multitude of problems across various industries.

The open source version of Corda is a unique, inclusive platform designed for production from the very start. Companies with a relatively simple IT structure and network can go live on it today. Each week we’re seeing new and innovative Corda apps being released into different industries.

Corda Enterprise offers a range of additional features that make it the most resilient, secure and efficient enterprise blockchain platform available, including the world’s only Blockchain Application Firewall, which enables it to be deployed inside corporate data centres, while retaining the ability to communicate securely with other nodes anywhere else in the world. This is a critical feature requested directly by institutions with complex IT infrastructures.

With the choice between Corda and Corda Enterprise, a wider range of institutions can now realise the full potential of blockchain regardless of their industry, size, budget and stage of development.

But the hard work doesn’t stop there. Just last month we launched Marketplace – a new channel for the R3 ecosystem. It offers a directory of over 200 organisations focused on harnessing the power of Corda, and helps firms to discover, build and deploy solutions on our platform. At launch, Marketplace had over 50 applications solving specific problems across several industries, including trading precious metals, streamlining property valuation, trading high quality liquid assets more efficiently, self-sovereign identity and much more.

When three years ago we started this journey to take the potential of blockchain technology and apply its benefits to real business, we knew there would be challenges ahead. Then, and to a lesser extent now, the industry’s imagination was captured by public blockchains like Bitcoin and Ethereum. We chose a different path, and the tough choices we made around critical issues such as privacy, security, scalability, integration and others led us to design Corda by taking the best of early blockchain technology and improving upon it to suit the needs of global business.

And the dividends are paying off. Corda is now seen as the blockchain platform that gets the job done. This is the right model and the right technology, built collaboratively by the right people. This is blockchain machine-tooled for business.

As more institutions put their resources behind blockchain technology, the network effect will continue to grow and businesses across the globe will become connected in a more streamlined, secure and efficient manner than ever before. Unnecessary risk and cost will be eliminated from business processes, security and privacy will be greatly enhanced and new business models and revenue sources will open up. Corda is now firmly rooted at the heart of this revolution, and our work has only just begun.

The concept of identification has always been at the very heart of financial services. For banks to manage customers’ money safely, they must be certain they know who they are dealing with – a simple premise on the surface, but a hugely complex and costly task in reality.

Physical, paper-based identity documents were traditionally relied upon to verify an individual or institution, but relentless digitalisation of almost all banking services from payments to lending, along with the growing threat of cyber-fraud, has driven the need for increasingly faster, safer and more efficient identity solutions.

KYC, short for know your customer, is an intrinsic element of identity management in modern day banking to prevent against fraud, terrorist financing and money laundering. International organisations such as the Financial Action Task Force (FATF) and Financial Stability Board (FSB), as well as banking regulators and law enforcement agencies, continue to implement increasingly strict and complex requirements related to KYC.

These regulatory requirements are particularly focused on correspondent banking, which fosters economic prosperity throughout the world by enabling business and remittance flows between countries. However, when coupled with inconsistent standards, long turnaround times and duplicative processes, the burden of regulation has created major inefficiencies in the existing correspondent banking model.

While numerous technology solutions exist to help streamline KYC processes for banks, a recent study conducted by Thomson Reuters shows that some financial institutions are still spending up to USD 500 million annually on ensuring compliance with KYC and customer due diligence. This has driven many banks to de-risk, terminating their relationships with particular institutions, countries and regions.

Against this backdrop, the stage is clearly set for a fresh approach to KYC. Financial exclusion, driven by de-risking, is a global problem that technology can solve, if implemented properly.

The emergence of blockchain technology in recent years has provided an opportunity for banks to re-engage with customers and correspondent banks excluded as result of de-risking. But design matters. Technology must be coupled with regional KYC and anti-money laundering (AML) standards in order to improve transaction traceability and identify potential suspicious activity, and highly sensitive data must be handled appropriately.

This is a complex and nuanced challenge, but if approached correctly blockchain can reintegrate excluded entities into the financial system, improve government oversight and reduce the cost and inefficiency burdens banks face today.

To understand how blockchain can improve KYC, it is important to first understand the scale and scope of the challenge.

Since 2010, 28 major banks have been fined for breaching U.S. sanctions, with seven banks receiving fines exceeding USD 500 million, of which the highest was USD 8.9 billion. In one particularly pertinent example, the Financial Conduct Authority and the New York Department of Financial Services issued KYC/AML fines for an institution that formed a cumulative USD 628 million penalisation.

In response, banks have moved to reduce their risk by shedding correspondent banking relationships in developing countries. The high and rising risk of fines and the costs of increased scrutiny have destroyed the tradition of banks extending services throughout the world, particularly to the poorest and most difficult-to-analyse regions.

Despite concerns around global de-risking, regulatory requirements are getting stricter and regulators continue to remind financial institutions of the importance of understanding customers and their transactions. Issues with the current cross-border payment system include inaccurate client information, lack of complete visibility over customer activity, jurisdictional differences with common identity standards, and data and privacy concerns.

To lower the risk of fraudulent or illicit transactions, banks must know where money is coming from and where it is going. Financial institutions are required to validate their customers’ identity, monitor all transactions and report any suspicious activity to a designated government body. To effectively comply with this requirement, financial institutions need to have a clear picture of their customer’s profile, identity, spending habits and the kinds of transactions he or she is likely to engage in.

No matter the size of the bank, KYC is not an easy task – if handled internally it requires a dedicated team of specialist data experts and a transformation of processes. This can be a very costly exercise. Inefficient KYC data collection processes divert time from business activities and relationship management, and require the verification of massive amounts of non-standard data and documentation.

Recent technological innovation in blockchain-based systems promises improvement in KYC compliance without the need for extensive networks with central administrators. Data on a blockchain platform’s distributed ledger is verifiable and immutable, providing increased transparency to relevant participants.

Regulators impose fines and penalties on banks that do not conduct appropriate due diligence on the entities and individuals they directly deal with; therefore, banks use intermediaries and shift some of the risk to the middle men or reject processing the transaction altogether. The more readily a bank in a well-developed country can access information on the end user and the end user’s bank in an unbanked region, the more comfortable it will be with facilitating the transaction.

The shared nature of blockchain technology lends itself naturally to providing a single, unified registry of KYC information for banks. A KYC application built on R3’s Corda blockchain platform recently facilitated over 300 transactions during a collaborative four-day trial with 39 financial services firms, as well as various central banks and regulators.

In stark contrast to the typically complex and duplicative KYC processes banks are forced to endure today, Corda’s self-sovereign model allows customers to create and manage their own identities including relevant documentation and then grant permission to multiple participants to access this data. This reduces duplication and costs by eliminating the need for each institution to individually attest and update KYC records.

The transactions in the trial were conducted in 19 countries across eight timezones. Banks were able to request access to customer KYC test data, whilst customers could approve requests and revoke access. Customers were also able to update their test data which was then automatically updated for all banks with permission to access it.

Corda’s unique technology addresses any concerns around data privacy and security that may arise when sharing identity data. In direct contrast to traditional permission-less blockchain platforms, Corda only shares data with those with a need to see it. This is critical for its application in the KYC space, where sensitive data must be kept confidential.

Having KYC information readily available allows banks to spend more time analysing information rather than collecting and verifying the data received – a key issue in onboarding delays. In addition, all data is fully standardised, significantly reducing the time, cost and resources required to manage it.

By providing a single unified view of a foreign correspondent bank’s onboarding documentation, banks can ultimately gain the confidence to re-engage with customers excluded from higher risk jurisdictions.

With the support of regulators and the intelligence community, blockchain technology’s unique approach to digital identity could hold the key to reducing the KYC burden faced by banks, improving regulatory oversight and, ultimately, increasing financial inclusion across the globe.

More broadly, moving payment transfers onto a blockchain platform like Corda could provide a holistic view of the payment system, delivering clear benefits to banks, regulators and intelligence units tasked with identifying money launderers and terrorist financing.

The current de-risking problem has pushed millions of individuals and entities out of the traditional banking system and caused them to explore non-traditional payment methods that have little or no government oversight. The right blockchain technology design coupled with KYC and AML standards consistent across regions will significantly increase traceability to support financial inclusion for the countries and regions whose development hinges upon access to the global banking network.

Following the success of our recent 39-member global trial, R3 is focused on developing the solution, scheduled to go live in 2019. If you’d like to learn more or are interested in, please contact abbas.ali@r3.com.

Bangkok Bank, BNP Paribas, CTBC Holding, HSBC, ING, NatWest, SEB and Standard Chartered in partnership with Bain, CryptoBLK and R3 launch open industry platform, corporate customer pilot programme and technology partner programme on the Corda Network

23 October 2018 (Sydney/New York) The Voltron initiative has launched the open platform for documentary trade, targeting production on R3’s Corda Enterprise blockchain platform in 2019. Founding members of Voltron include Bangkok Bank, BNP Paribas, CTBC Holding, HSBC, ING, NatWest, SEB and Standard Chartered. Voltron’s initial aim is to use blockchain technology to bring significant efficiencies to transacting letters of credit.

Collaboration with corporate customers has been critical in shaping the initiative, with a successful live transaction with Cargill in May 2018 demonstrating the viability of the platform. Voltron is continuing to extend its corporate customer programme to undertake more live transactions and is in active discussions with a number of corporates.

Corporate customers will be able to connect with their banks and trading partners via a single, simplified channel, for both issuance of letters of credit and presentation/exchange of documents across an open network. In addition, trade documents produced on external networks by a corporate’s supply chain partners can be digitally sent, verified and processed in Voltron. This new model provides legal enforceability of title documents and greater digitisation across business networks on Corda, addressing the challenge of today’s digital islands bridged by paper-based processes. The Bolero network and electronic Bill of Lading (eBL) functionality is included at launch. The essDocs network and eBL solution will start the initial design and integration with the Voltron solution, with others to be added on a rolling basis.

Voltron will enable banks to speed up financing decisions and enhance the customer experience. The banks’ corporate clients can reduce internal operational procedures through less reconciliation with their trading partners and banks.To help lower barriers of adoption and create an open ecosystem, a unique partner programme is available to enable trade finance platform providers to offer a Letters of Credit solution on the Voltron business network. Voltron is working with four of the leading trade finance platform vendors to design and build a solution that will offer a Voltron-enabled service to their existing bank and corporate customers.

Voltron extends an open invitation to all banks and corporates to apply to join the network.

David E. Rutter, CEO, R3 comments: “Today’s trade finance solutions were built in siloes, adding significant risk, operational inefficiencies and costs into the process. Previous trades conducted on Voltron have demonstrated banks can offer a commercially and operationally viable blockchain solution with significant customer benefit.

“It is critical for banks and corporates to have the option to work with the technology partner of their choice, as this lowers barriers to adoption and helps drive widespread deployment of Voltron via our partners. In addition, our focus on industry collaboration and open networks uniquely positions Voltron to scale by leveraging the Corda Network to ensure interoperability with other global trade initiatives and other networks including supply chain, cash, insurance and identity.”

For more information on the Voltron technology partner programme or the corporate customer pilot programme, please contact voltron@r3.com

R3’s global team of over 180 professionals in 13 countries is supported by over 2,000 technology, financial, and legal experts drawn from its global member base.

PRESS RELEASE

Groundbreaking study proves DLT can process more than 100 million trades per day

New York/London/Hong Kong/Singapore/Sydney, October 16, 2018 ‒ The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, today announced the results of a benchmark study which demonstrated for the first time ever that distributed ledger technology (DLT) is capable of supporting average daily trading volumes in the US equity market of more than 100 million trades per day.

The study, which was conducted by Accenture with additional support provided by technology service providers Digital Asset (DA) and R3, proved that DLT can perform at levels necessary to process an entire trading day’s volume at peak rates, which equates to 115,000,000 daily trades, or 6,300 trades per second for five continuous hours. Currently, public blockchains supporting crypto-currencies operate at single or double digit per second performance, which until now was the only indication of the potential volume that a private DLT might be able to support.

… Read more at dtcc.com, here.

Press Release

PRESS RELEASE

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