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Industry roundup: 22 February

Three banks join carbon trading platform

Three more banks – UBS, Standard Chartered, and BNP Paribas – have joined Project Carbon, a bank-backed initiative to establish the Carbonplace blockchain-based marketplace that enables firms to buy and sell carbon offsets.

The Carbonplace platform was formally launched on 15 February, following a pilot in August 2021 by four founding banks: National Australia Bank (NAB), NatWest, CIBC, and Itau Unibanco. It is scheduled to be fully operational by the end of this year and aims to provide a facility for corporate customers to buy and sell carbon offsets with “clear and consistent pricing and standards”.

Only credits verified under internationally agreed standards, like REDD+ and Gold Standard, will be listed on Carbonplace.

“This innovative platform will help create a streamlined and transparent voluntary carbon market for our clients and the industry, which will be critical to helping us all fulfil our sustainability strategies,” commented UBS global markets co-head distribution Kevin Arnold.

“Carbonplace will reduce barriers to entry in the voluntary carbon market and give project developers in the global south direct access to large numbers of customers looking to fund carbon reduction and removal projects,” said Standard Chartered head of carbon markets development and Integrity Council for Voluntary Carbon Markets (ICVCM) board member Chris Leeds.

“It builds on the work Standard Chartered has been involved in, in the Taskforce for Scaling the Voluntary Carbon Markets (TSVCM) and ensures that carbon credits on this platform are of the highest quality.”

“When launched, Carbonplace will give greater transparency on the pricing and material climate impact of carbon credits and supports corporates and investors to access quality projects as part of their multi-action carbon management strategies,” said BNP Paribas Global Markets CIB Head of Company Engagement & Chief Sustainability Officer Constance Chalchat.

The TSVCM was launched in September 2020 by Mark Carney, former governor of the Bank of Canada and the Bank of England who was appointed by the UN at the end of 2019 as its special envoy for climate action and finance. Its role is to assess existing voluntary offsetting schemes and identify key challenges to scaling them up while ensuring credibility.

The Taskforce launched the ICVCM last September as its global independent governance body and it is now working to establish global standards for voluntary carbon markets and draw up plans to ensure that the so-called ‘Core Carbon Principles’ are adhered to. Draft proposals were published late last year. 


Australia’s Bankwest plans phased exit from business banking

Australia’s Bankwest has announced that it will no longer offer business products under the Bankwest brand and will progressively offer and transition its existing business banking customers to Commonwealth Bank’s (CBA) products and services.

The move follows the closure in 2017 of Bankwest’s business banking operations outside of Western Australia. The CommBank subsidiary is moving to exclusively to retail banking operations but reassured its commercial banking clients and business brokers that the changes will not be immediate. Business customers transitioning to CBA will continue to be served by Bankwest’s existing Western Australia-based team, with the transition expected to take place over a period of years.

Established in 1895, Bankwest began life as the Agricultural Bank of Western Australia and was acquired by CBA at the outset of the global financial crisis. In 2017 the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) and the Australian Securities & Investment Commission (ASIC) investigated the handling of customers following CommBank’s takeover.

“Bankwest is predominantly a national retail business and is strongly positioned to compete and deliver great customer outcomes due to its significant scale and the investment planned to enhance its technology capability,” said CBA chief operations officer (COO) Sinead Taylor. “Ultimately, the Bankwest of the future will be a WA-based national retail banking business focused 100 per cent on meeting the everyday banking and home buying needs of people in households across Australia”

“The banking sector has evolved rapidly, creating an environment where investment at scale is critical to meet our customers’ needs and expectations of banking products and services” Taylor added.

Announcing the move on its website, Bankwest stated “We believe offering our business customers access to CBA’s market leading products and services is the best way to meet their needs and support them in continuing to achieve their goals in today’s demanding market. While we acknowledge this is a significant change, we believe we will be better able to meet more customer needs with greater simplicity and ease.”


FSB says that digital assets threaten global financial stability

Digital assets could pose a real threat to global financial stability due to their scale, structural vulnerabilities and increasing interconnectedness, according to the Financial Stability Board (FSB) in its latest assessment of risks to financial stability.

The Basel, Switzerland-based FSB, an international body set up to monitor and make recommendations about the global financial system, was set up in the wake of the global financial crisis. It launched after the G20 London summit in April 2009 as a successor to the Financial Stability Forum.

Chaired by Klaas Knot, President of De Nederlandsche Bank, the FSB Secretariat is hosted by the Bank for International Settlements (BIS) and FSB regulators include the European Central Bank (ECB), Bank of England (BoE) and US Federal Reserve.

In its crypto update, the FSB reports that digital asset markets are fast evolving and the close, complex and constantly evolving interrelationship between unbacked crypto-assets such as Bitcoin, stablecoins, decentralised finance (DeFi) and crypto-asset trading platforms must be considered holistically when assessing related financial stability risks.

Vulnerabilities associated with crypto-asset markets include:

  • Increasing linkages between crypto-asset markets and the regulated financial system
  • Liquidity mismatch, credit and operational risks that make stablecoins susceptible to sudden and disruptive runs on their reserves, with the potential to spill over to short-term funding markets
  • The increased use of leverage in investment strategies; concentration risk of trading platforms
  • The opacity and lack of regulatory oversight of the sector

“Financial stability risks could escalate rapidly and call for timely and pre-emptive evaluation of possible policy responses,” the FSB report states. “The rapid evolution and international nature of crypto-asset markets raise the potential for regulatory gaps, fragmentation or arbitrage. In light of the growing threat to financial stability, we intend to update previously published guidance on global stablecoin arrangements which will identify how any gaps could be addressed by existing frameworks.”

The total market capitalisation of stablecoins reportedly stood at around US$157 billion in December 2021 compared with only US$5.6 billion at the start of 2020, while an estimated US$100 billion-plus was locked into DeFi projects.


Setback for Eastern Caribbean CBDC pilot DCash

Concerns are being expressed over a lengthy power outage afflicting the central bank digital currency (CBDC) launched last March by the Eastern Caribbean Central Bank (ECCB).

Known as DCash, the project was launched by the ECCB at the end of March 2021 as one of the first large-scale CBDC pilots and the first multinational one as the ECCB spans eight Caribbean islands, of which only one has not taken up DCash. Users do not require a bank account to participate and can make payments and transfers in real-time without fees.

However, on 14 January the ECCB announced that DCash had gone offline due to a “technical issue” and would require “additional upgrades” before service was restored. The St Kitts-based central bank added that it was “actively and diligently working” with its partners to fix the problem but although “the current service interruption is unfortunate [it] is providing a useful opportunity for testing the resilience of our platform ahead of commercial deployment and integration.”

The technical issue has still to be resolved more than a month later and the payment system is still offline as upgrade work continues. Some transactions have failed, and the central bank says it will honour these when the system comes back online. It has also stressed that digital currency balances held in wallets remain secure. 

In an email, Karina Johnson, a DCash project manager at the bank, said the problem was related to an expiring certificate on the version of the Hyperledger Fabric that hosts the DCash ledger. The ECCB has issued updates over the past five weeks. “We are approaching the end of closed testing on the technical solution,” Johnson wrote on 18 February, “and anticipate commencing wider stakeholder testing in the next seven days.”

The DCash crash reflects some the technical challenges governments face as they consider embracing sovereign e-currencies. Bitt, the ECCB’s Barbados-based technology partner, is also the provider for Nigeria’s eNaira CBDC project, which is currently being piloted. Reports have queried how similar the setups are for the two countries and whether any vulnerability in the DCash system could be exploited in Nigeria.

Certain service providers such as Bitt, G+D, ConsenSys and Accenture are CBDC partners in multiple jurisdictions, which potentially means that potential future outages could impact more than one country where the glitch results from technical bugs or design issues.

“This is an important case study in things that can go wrong in the rollout and expansion of a digital currency,” Josh Lipsky, the director of the Atlantic Council’s GeoEconomics Center, told Bloomberg. “Every country trying do a large rollout has had problems.”

A key criticism of CBDCs is that if the network goes down, the entire country’s citizens can’t use their money. However, depending on the design, some smaller transactions can persist in some cases. Regions such as the Caribbean and Japan, are particularly keen to ensure offline usage in the event of weather events and earthquakes, but DCash requires an internet connection to function.

However, the Covid-19 pandemic and resulting lockdowns have hampered DCash education campaigns across the Eastern Caribbean islands and the e-currency is not yet widely used, so the protracted outage has not been too disruptive for businesses.

The problems affecting DCash are nonetheless being closely followed as the Caribbean emerges as a pioneer in CBDCs. The Bahamas launched the “Sand Dollar,” the world’s first CBDC, in October 2020, and Jamaica is expected to roll out the “Jam-Dex” later this year. 


GXO Logistics to buy UK rival Clipper

Two major supply chain management groups are set to merge, with US firm GXO Logistics having reached an agreement to buy UK rival Clipper Logistics for £943 million (US$1.28 billion), according to reports.

GXO’s chief-executive, Malcolm Wilson, said: “We can achieve significant productivity opportunities by taking advantage of technology and infrastructure overlap in the joint enterprise.”

Clipper processes orders for several major European retailers, including supermarket chain Asda, fashion brand Asos and the UK’s John Lewis department stores. The company’s particular focus on clothing sees retailers outsource their online deliveries to Clipper, which manages stock and picks and packages clothes in its warehouses. It also handles clothing returns, which has become an important and costly issue for fashion retailers.

GXO operates hundreds of warehouses worldwide and has said the purchase would add more e-commerce fulfilment customers and provide expertise in technology returns, bolstering its global reach in countries like Germany.

The reports state that resulting cost savings from the deal are expected to be realised within two years. They also note that supply chain management has been a “key focus” for international retailers and logistics partners, particularly in the past two years as supply bottlenecks from the Covid-19 pandemic have had knock-on impacts such as labour issues, port congestion and container shortages.


Polytrade’s trade finance platform completes first deals

Trade finance platform Polytrade, which launched its blockchain platform mainnet at the end of January, said it completed its first trio of transactions earlier this month.

The Polytrade platform, built on Polygon chain, aims to harness the massive liquidity of the crypto world to finance working capital for small to medium-sized enterprises (SMEs) which may not be able to tap into the conventional sources of finance for a variety of reasons, ranging from a lack of understanding around some trade finance instruments to lack of collateral, high cost of borrowing or exhaustion of credit limits.

Its website promises: “Over 60% of SME trade finance requests are rejected – Polytrade will change it.”

For its first transactions, Polytrade collaborated with Singapore-based fintech company Volofin to carry out the first ever real-world invoice financing using crypto funds. The partnership was kickstarted with the funding of Volofin’s invoices to three global buyers based in the US, UK and New Zealand. The lending pool for financing Volofin’s invoices was backed by Lio Factory, an alternative investments platform building disruptive ventures in fintech and deep tech with offices in Milan, Luxembourg, London and Boston.

Reports suggested that Polytrade’s launch of its mainnet three weeks ago was well timed for SMEs around the world, as the Covid-19 pandemic has increased the incidence of late payments by global buyers. It also marked a watershed moment in the crypto world as crypto liquidity can now be harnessed to bridge the US$1.6 trillion global trade finance gap.

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