Tuesday, September 15, 2015

Nine Top Global Banks Pool Resources to Fund R3 to Develop Digital Currency Standards

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Nine of the largest investment banks are planning to develop common standards for blockchain technology in an effort to broaden its use across financial services, The Financial Times reports.

The banks – Goldman Sachs, JPMorgan, Credit Suisse, Barclays, Commonwealth Bank of Australia, State Street, Royal Bank of Scotland (RBS), BBVA and UBS – will fund a startup called R3, formed by a New York-based group of trading and technology executives.

The banks will jointly contribute several millions of dollars, according to a person familiar with the talks. The funds are expected to go to a forthcoming Series A capital raising for R3.

The project will be led by R3 Founder and Managing Partner David Rutter, who served as CEO of electronic broking at ICAP, the world’s largest interdealer broker, from 2010 to 2013. Prior to ICAP, Rutter was co-owner of Prebon Yamane, last serving as chief executive officer for the Americas.

The R3 team is composed of a highly specialized team of financial services industry veterans, technologists, subject matter experts and new tech entrepreneurs especially focused on rethinking and improving the modern financial markets ecosystem. Rutter recruited another former ICAP trading executive, Nichola Hunter, to join R3. Richard Brown, a technology expert formerly with IBM UK, and Tim Swanson, a U.S.-based cryptocurrencies consultant, have also joined R3.

In addition to developing commercial applications, the project will seek to establish consistent standards and protocols for this emerging technology across the financial industry in order to facilitate broader adoption and gain a network effect, notes an R3 press release. The group will collaborate on research, experimentation, design, and engineering to help advance state-of-the-art enterprise-scale shared ledger solutions to meet banking requirements for security, reliability, performance, scalability and audit.

R3 and its bank partners will establish collaborative joint working groups to lead these efforts, which will leverage the R3 team as well as experts within the partner banks. The group will work within a collaborative lab environment or “sandbox” to test and validate distributed ledger prototypes and protocols.

“This partnership signals a significant commitment by the banks to collaboratively evaluate and apply this emerging technology to the global financial system,” said Rutter. “Our bank partners recognize the promise of distributed ledger technologies and their potential to transform financial market technology platforms where standards must be secure, scalable and adaptable.”

R3 is an innovation firm focused on building and empowering the next generation of global financial services technology, states the company’s website. R3 focuses on applications of cryptographic technology and distributed ledger-based protocols within global financial markets.

“If you’re looking to introduce applications with distributed ledger technologies to improve the financial markets, you can’t have each participant working to a different pattern,” said Christopher Murphy, global co-head of FX, rates and credit at UBS.

R3 is bringing a consensus, which could establish common standards, he said.

“The collaborative model we’ve established with R3 and the other banks is a very effective way to deliver robust shared ledger solutions to the financial services sector,” said Kevin Hanley, director of design at RBS.  “Right now you’re seeing significant money and time being spent on exploration of these technologies in a fractured way that lacks the strategic, coordinated vision so critical to timely success. The R3 model is changing the game.”

“These new technologies could transform how financial transactions are recorded, reconciled and reported – all with additional security, lower error rates and significant cost reductions,” said Hu Liang, senior vice president and head of emerging technologies at State Street. “R3 has the people and approach to drive this effort and increase the likelihood of successfully advancing the new technology in the financial industry.”

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