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REGULATED LIABILITIES NETWORK: MAKING SPACE FOR DIGITAL CURRENCY WITHIN THE TWO-TIER MONETARY SYSTEM

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Marten Nelson, Co-Founder & CEO, M10 Networks

 

Here’s a good question: Can digital currency (DC) thrive within the two-tier monetary system that banks use the world over? After all, the current system has stood the test of time and is used by, well, everyone. Tearing it apart and trying to replace it with, say, a cryptocurrency makes little sense. How can we realize the promises of DC without throwing the baby out with the bathwater?

Earlier this year, Citi published a paper entitled “The Regulated Internet of Value” (the “Citi Paper”). In it, Tony McLaughlin, Head of Emerging Payments and Business Development at Citi’s Treasury and Trade Solutions, makes a case for settling the ongoing tug-of-war between proponents of stablecoins and those who favor central bank digital currency (CBDC) with a third option: the creation of a Regulated Liabilities Networks (RLN). As he explains: “Tomorrow’s money needs to be global, so we may envision a constellation of interoperable Regulated Liability Networks each founded on national currencies and supervised by local regulators.”[1]

Marten Nelson

McLaughlin is right on this account. If tokenization really is the best way to store and transfer digital value, as the Citi Paper suggests, it’s important that the regulated finance sector take a unified approach to avoid fragmentation and promote functionality. And perhaps, more importantly, to prevent transactions from migrating to the unregulated sector and putting our current system on the back burner.

According to the Citi Paper, pursuing tokenization in lockstep would allow central banks to expand beyond CBDC projects and include tokenization of all regulated liabilities. McLaughlin believes this would effectively “overcome a potential downside, which is the disintermediation of private regulated entities”. He suggests that this broader focus on regulated liabilities “brings the benefits of tokenization without the adverse consequences. It upgrades regulated money, which today only exists in account-based format.”[2]

What McLaughlin doesn’t appreciate, however, is that systems like this are already up and running in the pilot phase with banks around the world.

Several central banks (think: China and the Bahamas) have made great strides toward issuing digital currency on their own. Others have realized the value in embracing alternative ways to deliver the benefits of tokenization without actually issuing digital currency to residents. Afterall, if a central bank can avoid opening Pandora’s Box and still offer the benefits of CBDC, such as 24/7 access to banking services and fast, cheap, and easy cross-border payments, it will truly have located the Holy Grail. Emerging models for digital money make this possible – and are closer to bringing an RLN to life than McLaughlin might suspect.

The Citi paper rightly notes that maintaining a stable economic environment with sound monetary policies requires safe digital money that must be: “(a) regulated, (b) redeemable at par value on demand, (c) denominated in national currency units and, (d) an unambiguous legal claim on the regulated issuer.”[3]

Unlike cryptocurrencies such as Bitcoin, regulated liabilities include central bank money, commercial bank money, and electronic money since they all live on the balance sheet of the relevant regulated financial institution. An RLN would also allow stablecoins to be incorporated into the current financial system as regulated liabilities. By design, the transfer of money in a network of regulated liabilities will be in favor of verified legal persons, reducing the risk of financial crimes, and would be conducted through the transfer of tokens. These transfers are done through entries on a private ledger maintained by the bank, and not using bearer instruments. Consider the following definitions from the Citi Paper:

  • A token in a central bank wallet is a liability of the central bank
  • A token in a commercial bank wallet is a liability of the commercial bank
  • A token in an E-money wallet is a liability of the E-money issuer

“The legal meaning of the token is given by its location of the wallet in which it resides. When a token is at rest in a wallet controlled by an institution, then it is on the balance sheet of that institution as a liability in favour of the token holder.”[4]  By contrast, Bitcoin payments are conducted as a digital form of a bearer instrument.

Today, emerging models for digital money have harnessed the power of blockchain technology to express tokenized liabilities on the same shared ledger. This shared ledger represents the best of both worlds, creating digital money that is ‘always on’, instant and programmable, global in scope, but regulated by a sound banking system.

In fact, a shared ledger system enables both central bank money and commercial bank money to be tokenized. Furthermore, it allows transactions to settle instantly since banks on the system are transacting using tokenized central bank balances on shared ledgers. The platform would support multiple regulated liabilities. To address data sovereignty, there would be one ledger for each currency and it would host multiple types of liabilities for that currency. Banks can have positions on multiple ledgers. The ability for a bank to debit a position on one ledger and credit the balance on a different ledger enables cross-border payments.

And the best part? It all fits neatly within the two-tier monetary system.

The Citi Paper is an essential contribution to payments literature, providing the first public articulation of how an RLN can address the very real challenges of integrating digital money into our current financial framework. Yet, while McLaughlin states that creating such a network may seem like a “pipe dream,” at M10 Networks we’re already well on the way to bringing the vision to life for central banks and commercial banks around the world.

 

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TINTRA PLC FINALISES JOINT VENTURE WITH ARTIFICIAL INTELLIGENCE PARTNER TO BUILD INDUSTRY CHANGING REGULATORY TECHNOLOGY

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TINTRA PLC FINALISES JOINT VENTURE WITH ARTIFICIAL INTELLIGENCE PARTNER

Innovative fintech company, Tintra PLC(https://tintra.com/), has formed a joint venture with award-winning Artificial Intelligence and Machine Learning business, TMC2, via its subsidiary Finsensr.

The Joint Venture will utilise or create advanced, end-to-end AI tech – some already patented – to revolutionise how compliance between developed and emerging market economies works. This exciting tech stack includes the utilisation of lightning-fast large scale predictive modelling and semantic embeddings of financial data; together with the development of scalable efficient solutions based on customised shallow classifiers, deep learning, and Bayesian inference for robust and explainable predictive modelling.

Tintra is focused on enabling financial institutions, EMI’s, multi-nationals, and large corporates in the emerging world to gain access to banking systems that understand their geographic need. Using pioneering payments technology and compliance infrastructure will evolve the global banking industry. Where other fintech’s iterate, Tintra will innovate across the space.

In forming a joint venture with TMC2 – the team behind Mashtraxx, the AI engine being used to power a multi-billion dollar US based social media platform – Tintra aims to eliminate or radically improve the well documented emerging market issues of KYC & AML. The mission is to utilise these solutions to democratise financial regulation and level the playing field for all markets and make access to the global market place as seamless in Africa or Asia as it is in Europe or the United States.

 

Gary Wright, lead for TMC2 in the transaction stated, said “We are extremely excited to enter into this long-term partnership with Tintra to support the expansion of its business through the use of our leading-edge artificial intelligence. 

Our in-house team includes PHDs in Artificial Intelligence & Machine Learning. A Senior Executive Team with experience in the financial sector across financial services, Technology, Corporate banking, Investment management, Fund Management, and transaction services. With our key personnel gaining experience in institutions including Sungard, Mann Group, Royal Bank of Scotland, M&G, Prudential, Simplex Technology amongst a host of others

We are setting out to create the next generation of intelligent automated AI RegTech that we are confident will help power another billion-dollar unicorn, like Mashtraxx before it. We hope that this will revolutionise how the financial services industry fulfils the complex demands of KYC and AML compliance and regulatory legislation”

Tintra PLC is publicly listed on the AIM market of the London Stock Exchange and also available on the OTCQB Venture Market in New York.

In early November 2021, the PLC unveiled plans to raise additional capital to accelerate its growth strategy.

 

For more about Finance Derivative.

 

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CELLPOINT DIGITAL PARTNERS WITH VYNE TO ENABLE INSTANT OPEN BANKING PAYMENTS FOR MERCHANTS

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CELLPOINT DIGITAL PARTNERS WITH VYNE TO ENABLE INSTANT OPEN BANKING PAYMENTS FOR MERCHANTS

The partnership will allow CellPoint Digital customers to incorporate Vyne into its payment ecosystem and access instant payments without a need for direct integration.

 

Payment orchestration leader CellPoint Digital today announces a partnership with full stack account-to-account (A2A) payments specialist, Vyne. This partnership allows the Vyne platform to offer instant payments to CellPoint Digital’s merchant customers, allowing users to check-out faster than ever before and reducing merchant transaction costs.

Through CellPoint Digital’s Velocity Payment Orchestration Platform, merchants can easily incorporate Vyne into their payment ecosystem, providing all the speed and convenience of instant payments without the need for a direct integration with an open banking provider. With transactions intelligently routed and monitored in real-time, merchants can analyse performance and use data to cut costs, boost acceptance rates, and simplify operations via automated reconciliation.

By partnering with Vyne, CellPoint Digital’s merchants can now access improved payment experiences too. Harnessing open banking technology, the Vyne solution allows online shoppers to check out in as few as three clicks and offers settlements within seconds.

 

CellPoint Digital CEO, Kristian Gjerding, said: “The partnership with Vyne represents a significant addition to CellPoint’s payments offering. Merchants currently using our Velocity Payment Orchestration Platform can utilise all the benefits of the Vyne platform within their payments ecosystem and this will provide merchants with a greater opportunity to grow their business.

“At CellPoint, we put much stock into our partnerships. To us, they are more than simply functional and with Vyne being fellow innovators in the payments space with a track-record of supplying top tier merchants, we look forward to developing a long-lasting, collaborative relationship.”

The Vyne solution functions by using a customer’s existing online banking app to initiate and authenticate a transfer. As a result, the customer does not need to enter their account information online and sensitive financial details are never held by the merchant, resulting in a more secure process for both parties. By enabling a payment method that can be completed in just three clicks, the platform provides a simple and seamless experience that can help to reduce cart abandonment.

 

Vyne CEO, Karl MacGregor, said: “Existing payments and banking solutions are broken, and stacked against the merchants and consumers that use them. Payment methods come with a variety of settlement formats and can take anything from days to weeks to complete with customer conversions impacted by manual card data entry.

Vyne provides a new, alternative payment method for merchants and their customers and we’re delighted that more people will benefit from it through this partnership. CellPoint merchants will now experience instant fund settlement and their customers will be able to complete payments through their own banking apps in just a few taps with no card details needed. Merchants can also engage customers at the right time, through the right channels, using pay by link or QR codes, which can be sent via email, SMS, in app or used for in person sales.

“We look forward to working closely with CellPoint and empowering merchants with a level of payments functionality that can drive real, measurable growth.”

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