IBM, CLS building blockchain ecosystem for financial institutions

IBM, CLS building blockchain ecosystem for financial institutions

Settlement services specialists CLS has partnered with IBM to begin work on LedgerConnect, a distributed ledger platform to be used by the financial services industry.

The pair expect the platform’s clientele to include banks, fintech startups, and software vendors, all of which will be able to use it to deploy, share, and access services.

LedgerConnect itself will be a private permissioned network based on IBM’s existing blockchain platform.

The aim of LedgerConnect is to develop an ecosystem for financial institutions to explore the potential of blockchain technology. The platform will offer access to a range of services, including know your customer (KYC) processes, collateral management, derivatives post-trade processing, and reconciliation and market data.

In a statement, IBM suggested that by hosting the services on a single, enterprise-grade network, “organisations can focus on business objectives rather than application development, enabling them to realise operational efficiencies and cost savings across asset classes”.

Why LedgerConnect?

The two companies believe that blockchain technology promises to reduce inefficiencies in financial services and – contrary to naysayers’ criticism of the technology – speed up transactions through the use of an immutable, shared version of events, not to mention a single implementation of common business functions.

But even for the world’s biggest financial institutions, developing and operating distributed ledger technology is complex, expensive, and time-consuming.

With LedgerConnect, IBM and CLS are aiming to provide a highly secure network to host a range of blockchain services. As a result, financial institutions joining the ecosystem can focus on the end result of the applications, rather than having to develop them from scratch themselves.

The proof of concept

There’s no shortage of enterprise blockchains and fintech startups exploring the promise of distributed ledger technology, so for IBM and CLS to sign up nine financial institutions – including Barclays and Citi – to participate in the LedgerConnect proof of concept speaks volumes.

Partner banks’ faith is likely related to the system being based on a permissioned chain of IBM’s existing blockchain, making it ideal for sensitive, high-security applications.

Alan Marquard, CLS’ chief strategy and development officer, believes that LedgerConnect will provide a diverse platform for financial blockchain applications. “LedgerConnect is part of CLS’s strategy to explore how we can provide safe and robust solutions that create efficiencies and reduce risk for a diverse range of firms operating in the financial markets,” he said.

“We expect LedgerConnect to deliver enhanced efficiencies and economies of scale over single-purpose distributed ledger networks.”

“Together, IBM and CLS have been early pioneers in advancing blockchain solutions for the financial services space,” added Marie Wieck, general manager of IBM Blockchain.

“Building on the success of CLSNet and leveraging the strong relationship that CLS has with the world’s leading financial institutions, LedgerConnect is uniquely positioned as a blockchain marketplace for the financial services industry, which will accelerate innovation across the ecosystem with value-added services for blockchain networks.”

Once the proof of concept stage has been passed successfully and regulatory approval has been secured, CLS and IBM plan to make the platform readily available to the whole financial services industry.

Internet of Business says

A promising initiative that shows the extent to which blockchain is moving into mainstream banking far more quickly than many analysts had predicted – and faster than the industry itself believed was likely, if Bank of England governor Mark Carney’s comments in February were anything to go by.

However, concerns remain over the complexity and compliance status of blockchain in the financial services sector, with some trusted systems becoming so nebulous (and hard for even blockchain experts to explain) that auditing may – paradoxically – become harder, despite the distributed ledgers in play.

These issues are explored in depth in some of our recent reports on blockchain programmes.