• Fnality has developed a first-of-its-kind solution to the significant fragmentation in cross-currency interbank payments 
• ‘Fnality Participant Simulator’, created with FNA, has estimated the daily liquidity requirements reduction for banks when consolidating multiple existing payment rails into Fnality’s payment system
• Potential intraday liquidity savings for participant wholesale banks was found to be between 33% - 70%, reducing funding costs and payment delays
• BIS recently suggested potential industry savings of $8bn, assuming the top 100 Tier 1 banks were able to reduce their intraday liquidity requirements by just 25%

Fnality, the financial technology firm creating a network of distributed financial market infrastructures using blockchain, has today revealed it will be able to reduce banks’ intraday liquidity requirements by up to 70%, reducing funding costs and payment delays. The findings come ahead of Fnality’s global launch of its blockchain-powered payment system scheduled for 2022. 

Working in partnership with deep technology analytics company FNA, a leader in regulatory and supervisory technology, Fnality has been able to model and simulate its proposed payments ecosystem using actual shareholder bank data through FNA’s ‘Fnality Participant Simulator’ and subsequently estimate the daily liquidity requirements reduction for banks when consolidating multiple existing payment rails into Fnality’s system. This consequently impacts the balance sheets supporting the settlement of interbank payments too. 

Fnality shareholder Banco Santander has been closely engaged throughout, with senior representatives from its Treasury function involved in testing and utilising the underlying Fnality Participant Simulator model. Banco Santander participated in the designing of a tailored model incorporating specific entity structure and payments configuration data was created specifically for Santander, offering a bespoke insight into the significant liquidity optimisations that could be achieved through its planned usage of Fnality Global Payments. 

It is estimated that the possible intraday liquidity savings for participant wholesale banks using Fnality’s payment system is between 33% - 70%, which is highly significant given the Bank for International Settlements (BIS) recently suggested potential industry savings of $8bn in this space, on the assumption the top 100 Tier 1 banks were able to reduce their intraday liquidity requirements by just 25%. 

Liquidity concerns are dominating the regulatory agenda, spurred on partly by challenges posed by the global pandemic. With a lack of liquidity playing a major role in the collapse of Lehman Brothers which triggered the Great Financial Crisis of 2008, Fnality firmly believes in the need for a ‘liquidity lens’ to be applied when designing the financial markets infrastructure of tomorrow. By facilitating a ‘Single Pool of Liquidity’, Fnality participants will benefit from the ability to settle PvP as well as DvP transactions atomically and on a near-instant basis, empowering them to manage virtually the entirety of their cash and collateral portfolio from one place, rather than via the parking of capital across fragmented nostros, correspondents, domestic CSDs, and more.

Founded in 2019, Fnality is a consortium of global banks that is developing a novel asset-backed digital cash instrument for use within global institutional financial markets using Distributed Ledger Technology, with a global roll-out set for 2022. By providing near-real time 24/7 settlement capability and interoperating with other platforms, Fnality will give banks the opportunity to significantly reduce their intraday liquidity requirements. 

Commenting on the findings, Fnality CEO, Rhomaios Ram, said: “Since the Global Financial Crisis, regulatory bodies around the global have imposed stricter regulatory measures to ensure financial institutions are effectively managing their intraday liquidity risk. The industry understands that any impediment to intraday liquidity flows could have significant ramifications for the global financial system. “The pandemic has compelled banks to assess their current intraday liquidity management and stress-testing.

“At the same time, the digital disruption of legacy financial systems has drastically enhanced the way capital and funds can be traded. Of the technologies being integrated, blockchain is ideally placed to improve the efficiency of intraday liquidity, from reducing funding costs and payment delays to improved security.

“As the Fnality Participant Simulator shows, blockchain solutions exist for wholesale banks to significantly reduce funding costs. Beyond this, it ensures that intraday liquidity management is keeping up with the rapid pace and scale of daily transactions that are being facilitated through the latest fintech innovations.”

FNA Founder and CEO, Kimmo Soramäki, commented: “We are delighted to partner with Fnality on a first-of-its kind project which will significantly reduce intraday liquidity requirements for banks.

“It has never been so important to effectively manage payment operations. Treasury departments must increasingly balance an increasing number of challenges with growing demand for faster settlement speeds.

“Network analytics and simulation provide the necessary visibility and foresight over the flows of internal and external funds, highlighting previously unseen opportunities for greater operational efficiency and resiliency. Not only will this help treasurers to make substantial liquidity savings, but it will also protect their institutions from potential funding pressures in the future.”

Santander Head of Liquidity Management, Manuel Villa added: “Our work with Fnality on their Participant Simulator has offered Santander an invaluable window into the potential future benefits of innovative payment systems like Fnality Global Payments. As a founding shareholder in Fnality, we will continue to collaborate with them to understand how Santander can most effectively use the system to achieve the most optimal configuration for liquidity savings, utilising the Fnality Participant Simulator to test various adoption pathways.”