SWIFT, the interbank messaging platform, has made public results of its long-running proof-of-concept DLT (distributed ledger technology) Bank Pilot project.
The Basic Idea behind the SWIFT DLT Bank Pilot Project
The SWIFT trial relied upon Hyperledger Fabric, using the nostro accounts.
(Nostro accounts are the ones held by banks inside the banks).
The basic idea was to focus on many-to-many bank transfers. The project analyzed the system’s ability to meet requirements relating to data privacy, security, and governance, while overseeing the nostro reconciliation process.
Here is how SWIFT head of research, Damien Vanderveken, shared the system’s strengths and limits in a statement on distributed technology:
“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.”
Further elaborating on the findings, Damien Vanderveken revealed that SWIFT could do a lot more things which were previously not possible. Similarly, he also added that there are some other aspects of DLT Bank Pilot Project that need to be worked on before every issue is sorted.
Limits of the DLT Bank Pilot Project
Besides the ability to do “many-to-many” bank transfers, the DLT Bank Pilot Project could potentially leverage blockchain technology to overcome limitations of the transaction capacities. Also, the system would require the capacity to handle a lot more channels than actually demonstrated through proof-of-concept.
However, the project does point to the fact that banks can conduct real-time transactions with the use of a distributed ledger. Furthermore, these financial institutions can execute such transactions while also complying with the reporting requirements.
Here is a pertinent statement from SWIFT:
It enabled real-time … 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.
Prerequisites before DLT Bank Pilot Project Goes Live
There are prerequisites that need to be fulfilled before DLT Bank Project can come into use on a global scale. The statement does not include information on prerequisites for account servers for migrating real-time liquidity reporting & processing that need to be met before SWIFT can adopt the system.
Similarly, DLT technology will have to go through further advancements and developed more for supporting large global financial industry infrastructure. The statement points to DLT technology catering to a minimum of 10,000 channels while currently the study on Nostro relationships only included 528 channels in the study.
The immediate next steps for DLT technology would be encouraging the financial institutions to start using real-time liquidity processing and reporting. Also, they would require development of a platform which complements the DLT technology’s capabilities.