On the 19th April 2021, the UK Chancellor, Rishi Sunak announced a package of initiatives to place the UK at the centre of the global FinTech landscape. One of those initiatives was the publication of a policy statement regarding a new type of “omnibus” account at the Bank of England (‘the Bank’). Here at Fnality International, this is a hugely exciting and much anticipated development in our ongoing objective to create a global network of distributed wholesale payment systems. In this blog post, we will explore what the omnibus account is and why it is so important in realising the Fnality vision.
The omnibus account will allow a payment system operator to access the Bank’s RTGS (Real Time Gross Settlement) system in a way that has not been possible before. It enables the pooling of funds of a system’s participants within a single account, allowing participants to utilise those funds to settle payment related transactions across the payment system during and outside of RTGS operating hours. This new account and its pre-funded structure serve two main purposes: 1) it allows innovative payment models to emerge by setting out clear requirements for them to have access to a very safe settlement asset and 2) by safeguarding monetary policy implementation, as participants of the payment systems must be institutions that are already eligible to access central bank money settlement.
This is a game changer for Fnality International, opening up the full potential of its unique payment network:
- It enables the creation of a peer-to-peer payment system that reduces credit risk between counterparties but is open to a broad range of eligible financial institutions.
- Through the distributed nature of the underlying blockchain technology, the system will demonstrate enhanced operational resilience, removing single points of failure (each participant will operate nodes within its own technology stack).
- With real-time, 24/7 capabilities, the system will introduce new options with which participants can manage their own and their underlying clients’ liquidity positions. This has the potential to fundamentally change existing processes such as margin payments and pledges.
- The rationale for the creation of the Fnality Global Payments initiative was to provide a universal payment leg with the credit qualities of fiat currency to new digital asset platforms that are starting to emerge to cater for the digital asset revolution. Once an omnibus account with the Bank is established, the Sterling Fnality Payment System will be able to offer this – via an interoperability protocol - to GBP denominated delivery vs payment transactions on a near real-time basis.
- It is the first stepping stone to establishing a network of local payment systems. There are ongoing discussions with other central banks such as the Federal Reserve and the European Central Bank to establish additional Fnality Payment Systems for other currencies globally based on the same technology and with aligned system rulebooks. Through interoperability across systems, this will enable instant settlement of FX transactions, making banks’ liquidity management more efficient and reducing the need for costly, risky correspondent relationships that exist today.
- It is the start of the journey towards the nirvana of a global single pool of liquidity. Once local payment systems are established, interoperating with each other and digital asset platforms, a financial institution will have the option of managing its cross-border cash related settlements (payment versus payment and delivery versus payment) from its home currency on a 24/7 basis, all whilst minimising credit risk (and associated capital requirements) and improving efficiency.
As you can see, it is not just the omnibus account itself which is important (although for the Fnality business model it is critical), but the wider vision that it starts to enable. We have already submitted our application to the Bank of England and are well on our way to meeting the requirements of their new policy to opening this new account and enabling our payment system. We look forward to working with the Bank of England, relevant UK regulators and our participants over the coming months to get our omnibus account open and our payment system live.
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