HKMA and BOT published a report on outcomes of the joint Central Bank Digital Currency (CBDC) research project named Project Inthanon-LionRock. This project is an initiative to explore the application of Distributed Ledger Technology (DLT) to increase efficiency in cross-border fund transfers. The project was completed in December 2019 and a DLT-based proof-of-concept (PoC) prototype was developed successfully with ten participating banks from both countries. Project LionRock has proven the feasibility of utilizing DLT to conduct CBDC issuance and its atomic Delivery-versus-Payment (DvP) transactions.
The PoC shows that CBDC has the potential to reduce intermediaries and settlement layers in comparison to the traditional banking payments system. The key findings of the project relate to token conversion, real-time interbank funds transfer, foreign-exchange execution, liquidity management, and regulatory compliance. Project LionRock consisted of two phases conducted in a successive manner. Phase A focused on assessing the potential benefits and challenges in CBDC issuance and the technical viability of DLT. The key findings of Phase A include:
- Proved technical feasibility to interface DLT-based CBDC with Real-Time Gross Settlement system (RTGS) safely
- Proved possible extension of access of central bank money to corporates without opening up access to RTGS
- Demonstrated benefits brought by DLT to CBDC include transaction traceability, security, and resilience, along with the enablement of direct settlement on central bank money between customers
- Revealed challenges concerning scalability and privacy issues
The Phase B further evaluated the technical feasibility and suitability of implementing the life-cycle of exchange fund bills and notes, or EFBN, and Hong Kong government bonds on the DLT network. The key findings of Phase B include:
- Proved technically feasibility to tokenize exchange fund bills and notes as well as government bonds
- Validated operational benefits in automated intraday repo
- Discovered challenges in carrying out some corporate actions; for example, coupon payments
The key functionalities to support cross-border transactions in the corridor have been developed with participants in an attempt to incorporate practical business requirements. However, some challenges, namely regulatory and operational issues, along with certain technical limitations, may need to be explored in the next stage of the project. Suggestions for the way forward include adapting the model to match existing regulations as well as refining the model to ensure that it complies with global standards and can create synergies with other internal or external systems of other currencies.
The project involved valuable contributions from participating banks, technology partners, and development teams, reflecting the shared urgency to shape the application of DLT to prevail over existing pain points in cross-border transfers. It was initiated as a follow-up to the Memorandum of Understanding signed between the HKMA and BOT in May 2019. The two authorities agreed to proceed with further joint research work in relevant areas, including exploring business cases and connections to other platforms, involving participation of banks and other relevant parties in cross-border fund transfer trials. The project represents an important step forward in the realm of CBDC initiatives, especially in the advancement of cross-border transactions. With a committed team behind the platform, the PoC represents one of the many future potential DLT advancements between Hong Kong and Thailand.
Keywords: Asia Pacific, Hong Kong, Thailand, Banking, Securities, CBDC, Project Inthanon-LionRock, Cross-Border Payments, Delivery Versus Payment, Regulatory Compliance, Blockchain, Distributed Ledger Technology, Fintech, Regtech, BOT, HKMA
Previous ArticleFED Proposes to Revise Information Collection Under Market Risk Rule
APRA issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900).
The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV).
The Financial Stability Board (FSB) published a report that sets out good practices for crisis management groups.
The Australian Prudential Regulation Authority (APRA) found that Heritage Bank Limited had incorrectly reported capital because of weaknesses in operational risk and compliance frameworks, although the bank did not breach minimum prudential capital ratios at any point and remains well-capitalized.
The Office of the Superintendent of Financial Institutions (OSFI) released the annual report for 2020-2021.
Through a letter addressed to the banking sector entities, the Office of the Superintendent of Financial Institutions (OSFI) announced deferral of the domestic implementation of the final Basel III reforms from the first to the second quarter of 2023.
EIOPA recently published a letter in which EC is informing the European Parliament and Council that it could not adopt the set of draft regulatory technical standards for disclosures under the Sustainable Finance Disclosure Regulation (SFDR) within the stipulated three-month period, given their length and technical detail.
The Financial Conduct Authority (FCA) published the third in a series of policy statements that set out rules to introduce the UK Investment Firm Prudential Regime (IFPR), which will take effect on January 01, 2022.
The Australian Prudential Regulation Authority (APRA) published, along with a summary of its response to the consultation feedback, an information paper that summarizes the finalized capital framework that is in line with the internationally agreed Basel III requirements for banks.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) issued a consultative report focusing on access to central counterparty (CCP) clearing and client-position portability.