SWIFT completes landmark DLT proof of concept

SWIFT has published the final results from its DLT proof of concept for Nostro reconciliation, one of the largest and most ambitious proofs of concepts run with the emergent technology.

With 34 participating banks each with their own node deployed in the SWIFT DLT sandbox, the initiative was one of the most extensive blockchain proofs of concept powered by Hyperledger Fabric 1.0 executed in the industry so far, both in terms of participant engagement and in terms of the scale of the infrastructure deployed.

With the PoC SWIFT set out to work with the technology in a “many-to-many” setting addressing a real business issue, and draw lessons for larger scale implementations of the technology in the bank-to-bank payment area. The PoC sought to assess whether DLT, combined with SWIFT assets, would meet industry-level governance, security and data privacy requirements, whether DLT could bring concrete benefits over other architectures, and to check DLT’s current level of maturity to serve as a production-grade application within a mission-critical global infrastructure.

Based on the business and technical requirements validated by the participating banks, SWIFT developed a DLT solution through which Nostro Account owners and their servicers could share a private confidential ledger recording transactions related to their Nostro accounts.

The PoC showed that DLT could deliver the business functionalities and data richness required to support automated real-time liquidity monitoring and reconciliation. It enabled real-time event handling, transaction status updates, full audit trails, visibility of expected and available balances, real-time simplified account entries confirmation, the identification of pending entries and potential related issues, and generated the data required to support regulatory reporting.

The PoC also demonstrated the significant progress DLT has made with regards to data confidentiality, governance, security, and identification frameworks, evidencing that the emergent technology, combined with SWIFT assets, provides the necessary foundation for financial multi-bank applications.

“The PoC went extremely well, proving the fantastic progress that has been made with DLT and the Hyperledger Fabric 1.0 in particular”, said Damien Vanderveken, Head of Research and Development at SWIFT.

While successfully meeting all the business requirements set out, the PoC evidenced the considerable pre-requisites for industry adoption of such a solution – for instance, all account servicers would first need to migrate from batch to real-time liquidity reporting and processing, and back office applications would need to be upgraded to feed the platform with real-time updates.

“Although the PoC demonstrated DLT could improve Nostro liquidity management and reconciliation processes, it also revealed that the pre-requisites will have to be met before banks can enjoy the full benefits of switching to a DLT process”, added Vanderveken.

To facilitate improvements in the Nostro process, SWIFT will continue helping its community migrate towards real-time liquidity reporting and processing through SWIFT gpi, and establish a roll-out plan for the community-wide adoption of the UETR.

The PoC also showed that further progress is needed on the DLT technology itself before it will be ready to support production-grade applications in large-scale, mission-critical global infrastructures. For example, while 528 channels were required in the PoC to ensure Nostro accounts would only be stored on the nodes of their account servicers and owners, to productise the solution, more than 100,000 channels would need to be established and maintained, covering all existing Nostro relationships, presenting significant operational challenges.