UK finance announced the successful ending of the experimental phase of the Regulated Liability Network (RLN) last week.
Following this UK Finance held a launch event with speeches from some of the partners who worked on the RLN – such as HSBC, EY, Barclays, Nationwide, and Lloyds – as well as announcing their next steps.
While the outcome of the exploratory stage has been met with positive responses from those who worked on the project, some may be still wondering what the RLN actually is, what are some of its use cases, and where the RLN will go from here.
What is the RLN?
Bob Wigley, chairman of the board of directors, UK Finance, opened the launch event stating: “In my lifetime the UK has gone from leading the world in the technology around payments to, putting it politely, not leading the world. And why I think this whole
project is so important is I feel it could be a turning point.”
The RLN was originally conceived in a whitepaper
by Citi, which envisioned this a shared ledger which would record, transfer and settle regulated liabilities of central banks, commercial banks, and regulated non-banks. This has since evolved somewhat.
This vision has evolved somewhat, with the RLN is now being looked at as a platform for innovation. The experimentation phase saw UK Finance and its partners looking into the potential value in tokenised commercial bank money for the UK’s financial services
industry. The project explored the possible benefits of tokenisation, distributed ledger technology (DLT), and programmable money.
From a technological perspective, the core components on the platform were comprised a multi-user tokenisation platform and an API and orchestration layer.
RLN benefits and use cases
One of the main benefits the RLN supposedly offers is a new functionality not yet seen on the UK market. This mainly refers to the development of additional layers to payments, like a programmable payment or the ability to lock or unlock funds.
Adding to this, there could be benefits in its potential to deliver functional consistency across different forms for money by supporting common operational features such as interoperability, programmability, and transferability.
Another is the benefits of RLN as an innovation platform. According to UK finance this platform would allow for innovation through a single common point of access. This is for the use of banks, fintechs, payment and settlement systems, and others.
During their experimentation, UK Finance have reported finding over 40 potential business benefits from RLN, which they stated could result in economic benefits of greater than £3 billion. Examples of these include:
- Higher levels of settlement efficiency through the interoperability of money and asset ledgers.
- Simplifying customer journeys enabling benefits for all market participants.
- Reducing the cost of failed payments in the UK.
- Boosting the UK economy through increased payment efficiency.
Some of these examples are specific to the five use cases which have been presented. These use cases are a peer-to-peer (P2P) marketplace, house buying, an e-commerce merchant gateway, card integration and PoS compatibility, and the settlement of a tokenised
bond.
Regarding their investigation into the business benefits, Phoebe Zhou, head of emerging payments, Europe at HSBC commented: “We as industry participants, we look at what are the pillar use cases. What are the use cases can bring the benefits solving the
problems that our customers are facing. This is very important, because if we just build a solution, then find a problem for the technology's sake, that's not a good thing. We need to really identify what the key points and what are key pain points that we
are looking to solve through the innovation platform.”
Zhou highlighted 14 foundational capabilities of the platform including simple push payment, programmability, settlement finality, and the tokenisation of commercial bank money for deposits.
She also stated that through some of their workshops earlier this year, they were able to identify a further 20 use cases. These relate to net zero, trade finance, and
Zhou commented further on the project: “A lot of countries are innovating together to build the front end capabilities, but from the back end, how we can really smooth that transaction settlement is very important.”
How does the RLN fit into other architectures
Internationally the UK is not alone in exploring this kind of ledger. Most notably, BIS has enlisted seven central banks (including the Bank of England who have been involved in RLN) and other financial institutions, to work on a public-private collaboration
exploring how tokenisation can enhance wholesale cross-border payments.
While this is still being explored, with BIS having recently
added more participants, there are still some questions surrounding how RLN will fit into existing infrastructure.
This was addressed within UK Finance’s
technology finding’s report. This stated that within the architecture of the platform, there is a Ledger Connectivity Layer. Here a separate connector was deployed for each underlying system, such as Tokenisation Platform, BIS project Rosland connectivity,
open banking, and real-time gross settlement (RTGS).
Future of the RLN
The next steps for RLN primarily involve a hackathon, which is being held across the 20-21 November 2024. The event is being hosted by EY’s Fintech Lab in London and they claim it will allow hackers to use their prototype on the platform developed during
the experimental phase.
Lee Braine, managing director in the chief technology office of Barclays commented while announcing this that the event “provides an opportunity, whether it's from a business analysis perspective or technology perspective, to kick up the tires.”
In addition to this, they will be developing a roadmap for the project and next year looking at what new foundational capabilities can be added.
Looking to the future of the project Wigley stated: “You need one system that is interoperable, and we should focus not just on domestic innovation, but very close collaboration with our key international partners.”
Overall RLN could be a revolutionary development for payments in the UK. No one is offering this as an alternative to current payments architecture, but in addition. Yet one of the feelings I got while attending the UK Finance event was that in developing
this technology now, the UK may be able to get ahead of other countries in the development of cutting edge payments technology through this project.
William Chalmer, CFO, Lloyds Banking Group, in giving the closing keynote concluded by stating: “We've got to make sure that when we look back in 10 to 15 years’ time, we've really capitalised on the opportunity that presents itself to us today. It's our
actions today that are going to really define the future of money, because of that technology shift, because of that government interest, because the recognition in the payments landscape in the last 10 years has not been more than it should be. If we get
it right, we'll be able to support our customers. We'll be able to help UK economies grow and prosper.”