William Essex
William Essex

Leveraging DLT at the multi-asset app store

CLS is working with IBM on a PoC for its shared DLT network for financial services, LedgerConnect. This may just be the missing link between banks and fintech innovators, and it may have significant impacts for FX and other asset classes. Key features in the box at the end, but first, Ram Komarraju, Head of Innovation and Solution Delivery at CLS spoke to William Essex about LedgerConnect’s potential to change the way we do business.

Ram Komarraju
Ram Komarraju

William Essex: Why this, why now?

Ram Komarraju: There’s been a move towards electronification and digitisation in capital markets over the last thirty years or so. This has applied to a number of processes – including distribution, compliance, and administration – and as a result, the banks with the fastest processes such as STP gained an edge. However, this also meant that the same problem was solved once within each bank, and sometimes multiple times within each bank.

WE: Which led to inefficiencies…

RK: Yes – a key challenge is to make sure that each counterparty is looking at the same version of the data. There is also considerable duplication of effort in terms of implementing the business processing logic. DLT promises to solve both those problems. There’s a single version of the truth; and the smart contract code, once it’s created, can be shared multiple times. 

WE: What’s the USP for LedgerConnect?

RK: LedgerConnect is a closed, secure network - once an organisation joins this network, it can choose to test and deploy any number of apps from one or more vendors. Once these apps are successfully tested and deployed into the production environment, the organisation will begin to reap benefits of the associated efficiencies. 

LedgerConnect1 ecosystem
LedgerConnect1 ecosystem

WE: You put your app on the network, and banks can connect to it. As opposed to not being able to get through the door in the first place?

RK: There are hundreds of fintechs in existence which can make it challenging for a bank to know which application belongs to which fintech provider. Furthermore the process for a bank to onboard a new vendor can be time consuming, with a typical lead time of at least six months. By accessing the app on LedgerConnect, most of this process would have already been completed. Furthermore, for internal approval processes, the bank is able to demonstrate that the app will run on a secure and robust platform.

WE: What’s the timetable now?

RK: We’re currently in the very late stages of the POC.  After the platform has been tested, and provided there is sufficient market demand, CLS and IBM hope to make it widely available to the industry, subject to receipt of all necessary approvals.

WE: So how is this going to make life easier for the readers of e-Forex?

RK: LedgerConnect is an asset-class agnostic platform which will host several applications in areas such as know your customer processes, sanctions screening, collateral management, derivatives post-trade processing and reconciliation, and market data to realise operational efficiencies and cost savings. We are also launching CLSNet, a payment-netting solution for currencies that are not eligible for settlement through CLSSettlement – our FX settlement service, and will discuss the feasibility of making this service available on LedgerConnect in due course. 

WE: I may be wrong, but don’t the banks prefer to have their own DLT infrastructures, not least for regulatory reasons? The co-operative space hasn’t grown as fast as expected?

RK: There are multiple ways which firms can connect to LedgerConnect. The majority of buy-side firms and smaller banks would probably prefer to use proven, secure cloud infrastructure while other larger firms might choose to start with cloud infrastructure, and then bring it in house. Finally, there are larger organisations that would prefer to host their own nodes – functionality which is also supported by LedgerConnect. 

WE: I was about to say – LedgerConnect sounds like a platform for the cross-fertilisation of ideas – for innovation.

RK: We have engaged with a large number of fintechs to discuss whether their applications are suitable to be deployed on LedgerConnect. We are able to provide an incubation environment by allowing vendors to test and prove their solutions before they can be put into production.

WE: That opens up the future, really, doesn’t it? Ram Komarraju, thank you very much.much.

Take your pick from LedgerConnect

LedgerConnect is designed “to enable banks, buy and sell side firms, fintechs and software vendors to deploy, share and consume services hosted on a shared distributed ledger network”. The idea is that, by hosting services on such a single, enterprise-grade network, “organizations can focus on business objectives rather than application development, enabling them to realize operational efficiencies and cost savings across asset classes.”

Participants in the PoC include Barclays and Citi – nine financial institutions in total. In the course of the PoC, participants have selected services from vendors including Baton Systems, Calypso, Copp Clark, IBM, MPhasis, OpenRisk, SynSwap and Persistent Systems.