Salmons: Reimagining the settlement process
A project to build a digital settlement prototype that speeds up payments in conveyancing by linking banks, conveyancers and HM Land Registry has ended successfully, according to the Bank of England innovation body that ran it.
As well as cutting time and reducing the risk of fraud, the central bank said that digitising the process “reduces uncertainty by giving greater clarity to all the actors in a transaction”. This could involve everybody in a lengthy chain.
The experiment, known as Project Meridian, was run jointly between the Bank of England and the Bank for International Settlements’ London innovation hub. It also involved HM Land Registry and digital property transaction company Coadjute.
To reduce the possibility of payment failure, the project used central bank money in a real-time gross settlement (RTGS) system.
The approach introduced a new entity, known as a ‘synchronisation operator’, which switched assets recorded on network using distributed ledger technology, at an agreed time.
The principle was that funds moved if, and only if, an asset on another ledger also moved. At the end of the process, a ‘digital deed’ was created, time stamped at the point of settlement finality.
A possible future development, a report on the project predicted, might include electronic signatures built into the digital deed which could support anti-money laundering or counter-terrorism financing compliance checks.
The way the settlement tested in the project worked was that the transaction was registered on the synchronisation network and details inputted into a draft digital deed – where buyer and seller currently agree contracts and prepare completion forms.
Rather than deposit funds being sent to the conveyancer’s client account and mortgage funds disbursed, cash funds were put on hold at source.
Funds then flowed between banks’ RTGS accounts and the new digital deed was time stamped. Bank balances were updated to reflect the transfers and the deed was sent directly to HM Land Registry.
A possible future innovation could be that, rather than transmit transaction data relevant to the digital deed to the synchronisation operator, conveyancers could construct the deed directly themselves.
Insights gleaned during the project, its authors concluded, included that all the information required to achieve settlement could enable status updates of its progress to be shared, including completed and outstanding steps.
Also, automating the payment opened up opportunities to “enhance the entire transaction process”.
Coadjute said the benefits of the approach embodied in the prototype were impressive: “The new approach used in the prototype announced today replaces the numerous manual steps and checks and avoids the exchanging of paper-based documents entirely, cutting the risk of fraud or transactions being delayed at the 11th hour.”
Dan Salmons, the company’s chief executive, added: “Few payments are more important than those for property, and the work the Bank of England, HM Land Registry, Bank of International Settlements and Coadjute have done to reimagine the settlement process is extraordinary.
“We look forward to seeing the impact this project will have on shaping the future of property transactions.”
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