UBS Leads New Blockchain Settlement Coin Consortia

An emerging group of financial services firms led by UBS Group is looking to develop a crypto-based system to settle cross-border trades. Among the big banks included in the gang of 14 are, apart from UBS, Barclays PLC, Nasdaq Inc., Credit Suisse Group AG, Bank of New York Mellon Corp., Canadian Imperial Bank of Commerce, State Street Bank & Trust Co., Banco Santander SA, Commerzbank AG, ING Groep NV, KBC Group NV, Lloyds Banking Group PLC, Mitsubishi UFG Financial Group Inc. and Sumitomo Mitsui Banking Corp.

The crypto token they are developing will be called the utility settlement coin, or USC. Each firm has collectively invested £50 million ($63.2 million) in the company tasked with developing the coin and the settlement system, Fnality International.

The token, according to reports, will work as both a payment mechanism and messenger that carriers all required data to complete a cross-border trade. The system, according to its backers, is designed to minimize funds’ time in transit and the cost of moving money. Under the status quo, sending money across borders means it often has to pass through various hands, often over the course of days and weeks, before it can finally clear. Failed trades happen with a fair amount of frequency.

With a blockchain-based system, all the functions performed by intermediaries are theoretically baked into the transaction itself.

“You remove settlement risk, the counterparty risk, the market risk. All of those risks add up to costs and inefficiencies in the marketplace,” Hyder Jaffrey, head of strategic investment at UBS, told The Wall Street Journal.

UBS and its cohorts are not alone in pursuing blockchain-based solutions to the problem of cross-border settlement. Earlier this year, JPMorgan Chase & Co. said it been working on a token called JPM Coin that is similar in function to the USC token. The bank also launched a blockchain-based information-sharing platform called the Interbank Information Network in 2018 that as of today has over 250 members.

The USC token will be backed by bank-owned currency held at central banks.

The main challenges the USC token will likely face will be regulatory — though USB is believes it will be able to get its offering up and running within the next 12 months.