Could Blockchain Revolutionize UK’s Trillion-Dollar Payment Industry?

TLDR:

• UK Finance and 11 member banks completed an experimental phase of a tokenization and CBDC platform
• The Regulated Liability Network (RLN) platform showed potential for economic value and new functionalities
• The platform supports tokenized commercial bank deposits and simulated wholesale CBDC
• UK’s legal framework is flexible enough to support such innovation, pending regulatory engagement
• The RLN could potentially benefit the UK’s $14.5 trillion annual payments sector

UK Finance, a trade association representing the banking and finance industry in the United Kingdom, has announced the successful completion of an experimental phase for a tokenization and central bank digital currency (CBDC) platform.

The project, known as the Regulated Liability Network (RLN), involved 11 member banks, including major players such as Barclays, Citi UK, HSBC, and NatWest.

The RLN is described as a financial market infrastructure that can deliver new capabilities for payments and settlement, including tokenization and programmability.

The core of the platform comprised a multi-issuer tokenization system that facilitated the issuance of tokenized commercial bank deposits and simulated a wholesale CBDC – a digital token issued by a central bank for institutional use, not retail customers.

According to UK Finance, the experimental phase identified several potential benefits. The platform demonstrated its ability to deliver economic value and enable new functionalities such as programmable payments. It also included an application program interface (API) layer that enabled interoperability across various forms of money and existing ledgers.

Peter Left, co-chair of the RLN Project, stated,

“Working in partnership, we have demonstrated how this platform supports developments in money and payments aligned to common public and private sector objectives, while also providing clear and long-term customer and industry benefits.”

The trade association emphasized that the UK’s legal and regulatory framework is sufficiently flexible to support the implementation of such a “platform for innovation.” However, they noted that further implementation and regulatory engagement would be necessary.

The potential impact of this technology on the UK’s finance sector could be significant. Jana Mackintosh, UK Finance’s managing director of payments, revealed that the UK processes approximately $14.5 trillion (11 trillion British pounds) worth of payments every year.

The RLN could potentially help reduce fraud and the cost of failed payments in this massive payment ecosystem.

UK Finance is now looking to work with regulators and other public bodies to further develop payment networks based on this technology. The organization believes that a partnership between the private sector and regulators is the best way to successfully implement these innovations in commercial bank money.

The experimental phase also involved professional service firms and explored how the platform could give new firms a “common point of access” to established institutions and enhanced payment and settlement systems. This could potentially lower barriers to entry for innovative financial technology companies.

It’s worth noting that the UK has been showing increasing interest in tokenization and blockchain technology in its financial sector.

Last year, the Financial Conduct Authority (FCA) expressed support for an industry leaders’ report on the implementation of fund tokenization. Additionally, the newly elected Labour government has set out a policy aim for the country to become a securities tokenization hub.

The RLN project aligns with objectives set out by the Bank of England in a July discussion paper, namely

“the aims of maintaining the singleness of money and promoting sustained innovation.”

This suggests that the central bank is also considering the potential of such technologies in the future of UK finance.

As the project moves forward, UK Finance has called for further engagement with regulators and other public bodies to develop the RLN. The organization believes that while the current legal and regulatory framework is flexible enough to support such innovation, more work needs to be done to ensure proper implementation and regulatory oversight.