UK To Test Regulated Liability Network Alongside Several Banks
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The Regulated Liability Network became increasingly popular in the United States with trials that attracted the participation of several banks. The trial also included Mastercard and the New York Federal Reserve.
The UK Regulated Liability Network plans to experiment with a retail digital pound backed by commercial bank money and tokenized deposits.
It is not the first time the UK Regulated Liability Network has come into play. In 2022, EY worked on another UK proof of concept supporting cross-border payments.
UK To Test Regulated Liability Network
The test included the participation of several leading banks in the UK, including Barclays, HSBC and Lloyds. Santander UK and Visa will also participate in the testing phase, while EY will run the project on behalf of UK Finance.
The Regulated Liability Network separates mini networks for every participating bank and central bank. The concept is for settling interbank payments using the central bank’s partition.
During the Discovery Phase, the UK Regulated Liability Network analyzed three use cases while assessing the business, technology, and regulatory needs. The applications under consideration include a retail digital pound, wholesale B2B cross-border payments, and securities settlement.
Assessing The Use Cases For A Retail Digital Pound
The Bank of England is optimistic about a central bank digital currency (CBDC), saying there is an over 50% chance that a decision will be made to launch a retail CBDC. Third parties will also be needed to offer programmability.
Given that commercial bank money lacks programmability, CBDCs might become attractive to consumers and corporates. The Regulated Liability Network might be crucial in leveling the playing field.
Barclays published a paper recently on the matter, with its analysis showing that a financial market infrastructure is needed to host the programmability function. Barclays did not mention any institution in its paper, but it might include the Regulated Liability Network.
Out of the provided use cases for the UK Regulated Liability Network, wholesale cross-border payments ranked last in feasibility. The participants in this test identified the potential benefits of increased speed, cost availability, and lowered risk.
Financial institutions are already working on streamlining wholesale cross-border payments. Barclays, Lloyds, and Santander are working on a UK-based infrastructure targeting token known as Fnality. This infrastructure seeks to support wholesale cross-border payments through a model different from RLN.
The test also looked into the use of RLN in the securities market. The network might bring benefits to the securities market, including settlement efficiency, 24.7 liquidity, and automated margining.
The Discovery Phase state also compared whether to use centralized or decentralized technology. Distributed ledger technology (DLT) was ideal for integrity, tokenization, transparency, and privacy.
The participants in this process failed to share decisions on technology providers that would be considered for a launch. However, the ideal provider already has ties and experience in the financial sector.
