Blockchain to enter European settlement system

One of Europe’s biggest securities settlement systems is set to welcome a blockchain-based depository after Setl, a UK fintech group, received a licence from French regulators.

The approval to run a central securities depository from the Autorité des Marchés Financiers, the main French securities regulator, is a further coup for proponents of blockchain technology, who argue it can be harnessed to improve slow and inefficient back-office settlement and cut the amount of collateral held up in global payment systems. Critics argue it is little better than some existing technologies on the market.

A depository, or CSD, is the part of the market plumbing where deals are finalised and cash is exchanged for securities. Its recognition will allow Setl to connect to the eurozone’s Target2-Securities platform, a €1bn European Central Bank-run project that speeds up cross-border payments.

The money for settlements can come from other commercial banks or accounts held at a central bank. Some banks prefer using a dedicated central bank account as it reduces their exposures to counterparties. Official approval for Setl’s link to it is likely to be granted in the coming weeks. The CSD is likely to go live in early 2019.

Setl was designed specifically for financial markets as it settles payments in central bank money and not a cryptocurrency. While some blockchains use ledgers available to all users, Setl’s blockchain is a so-called “permissioned ledger”, which allows a small networks of trusted parties to see it.