Fnality Bank-backed blockchain payment rail seeks to raise £50m as it eyes digital euro – Ledger Insights

Fnality, the institutional payment system backed by 15 banks and the Nasdaq, is seeking to raise an additional £50 million ($55 million), as TheBlock first reported.

Previously called Utility Settlement Coin, Fnality tokenizes money in an account held with a central bank to allow institutions to settle transactions such as securities, intraday derivatives or collateral exchanges. For the settlement of blockchain transactions, it provides low-risk cash on the ledger, one of the factors that has delayed the institutional adoption of DLT, as it enables atomic settlement or delivery versus payment.

Next month, Fnality is set to launch its first currency, a tokenized British pound. HM Treasury officially recognized it as a payment system at the end of August, and in February the company conducted a pilot transaction with Natwest and one of its Santander investors. This is good news as the UK plans to launch a DLT-based financial market infrastructure (FMI) sandbox next year.

A digital euro next?

Sources told Ledger Insights that Fnality is also actively working on a digital euro, which is bolstered by an investment earlier this year from Euroclear. However, various sources recently informed Ledger Insights that in the past three months, the European Central Bank has started canvassing banks about interest in a wholesale CBDC in addition to its active work on a retail CBDC. .

When the company was incorporated in 2019, it planned for five currencies, the Canadian dollar, the euro, the pound, the Japanese yen and the US dollar. On the dollar side, Fnality was one of several companies involved in the development of DTCC’s blockchain settlement solution, Project Ion.

Fnality is not short of money

When Fnality announced its £50m funding in 2019, the stated intention was always to raise additional funds as each coin was launched. This is because each currency has a separate company that operates a central bank account and a separate licensed Ethereum blockchain network.

Last year, Fnality lost £15 million ($16.6 million) but still had £27 million ($30 million) at the end of the year, partly because it issued £21.7 million ($24 million) in convertible loan notes in 2021.

In addition to the £27 million in cash from holding company Fnality International, Fnality UK also had £4.7 million. It therefore raises funds from a relatively solid financial situation.

How it works

The Bank of England paved the way for the rollout when it gave the green light to omnibus bank accounts, which allow the mixing of funds from different entities for wholesale settlement purposes.

Although Fnality sees itself as a payment system rather than a stablecoin, there are parallels. While stablecoins are backed by Treasury securities and commercial bank account balances, Fnality currency tokens are backed by a central bank account. When a bank wants to tokenize money, it transfers money to the omnibus account and the equivalent amount is tokenized. If he wants to withdraw money, the tokens are burned and the money is transferred from the omnibus account to the central bank account belonging to the bank.

Paving the way for DLT adoption

There have been at least four reasons for the slow institutional adoption of DLT. One of them has been the lack of low-risk cash in the ledger, which Fnality is helping to address. The other reasons also disappear.

What makes a network useful? Exchanges with two or three other institutions are unlikely to produce sufficient efficiency gains. Over the last year or so, many of the major international banks have started building large DLT teams, which means that when a network is launched, there are more participants to trade with.

There has also been a lack of integration with legacy systems, which is not yet resolved, but is starting to be resolved as DLT teams are built.

The final piece of the puzzle is regulation. Some jurisdictions are clearer than others, such as France, Germany, Luxembourg and Switzerland in Europe, and Singapore and Japan in Asia. The UK’s IMF sandbox and the EU’s DLT pilot scheme should help clear the picture.

Arguably, there has been a fifth reason for the slow adoption of DLT, the challenges of building and operating consortia. This leads to Fnality backers: Banco Santander, Bank of New York Mellon, Barclays, CIBC, Commerzbank, Credit Suisse, Euroclear, ING, KBC Group, Lloyds Banking Group, Mizuho, ​​MUFG Group, Nasdaq, SMBC, State Street and UBS.

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