Blockchain technology poised 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.

The London group also announced a management reshuffle on Tuesday, with co-founder and chief executive Peter Randall becoming president. He will be replaced by Philippe Morel, formerly a consultant at Boston Consulting Group.

The group is chaired by Sir David Walker, best known for his Walker Report of corporate governance in UK banks, whose recommendations have since shaped much of the way the financial services industry is run. Citigroup, Crédit Agricole and Computershare are among its shareholders.

Mr Morel “brings a wealth of experience in the capital market, financial, and regulatory spheres and we are very pleased to have attracted such an impressive talent”, said Sir David.

Mr Randall, best known for co-founding share trading venue Chi-X Europe, will focus on Setl’s international business, as well as marketing and corporate communications.

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