Is there such a thing as 100% Settlement Finality?
First of all, a very important philosophical point to make is that there is no system in the world that offers truly 100% settlement finality in the literal sense of the term.
What is “finality”?
One of the simple properties that a centralized system at least appears to have is a notion of “finality”: once an operation is completed, that operation is completed for good, and there is no way that the system can ever “go back” and revert that operation.
How can payment and settlement systems protect against insolvency?
Specifically, payment and settlement systems that are designated may apply for protection against the operation of insolvency law for instructions entered into their system. This is achieved via the application of the relevant Settlement Finality law operable in that country.
Is the EU Settlement Finality Directive still in effect?
Both the EU Settlement Finality Directive and related local regulations continue to be amended and updated, which all participating systems must continue to remain cognisant of.
What is settlement finality directive?
EU law minimising risks associated with the transfer of financial instruments and payments, especially those risks which are linked to the insolvency of transaction participants.
What is finality in banking?
In finance, the term "finality of payment" refers to the moment at which funds, recently transferred from one account to another, officially become the legal property of the receiving party.
What does finality date mean?
Related Definitions Finality Date means the date after which the Court enters the Final Order and Judgment and the time to appeal the Final Order and Judgment expires without appeal, or any appeal is dismissed, or the Final Order and Judgment is affirmed and not subject to review by any Court.
What is utility settlement coin?
The Utility Settlement Coin initiative will tokenise fiat currencies on an Ethereum-based blockchain addressing the 'cash on a ledger' problem and potentially transforming the post-trade process, and, most importantly, banks are throwing their money behind it.
What are the three main types of bank transactions?
ATM: Deposit or withdraw funds using an ATM. Charge: Record a purchase on a credit card or withdraw funds using a debit card. Check: Withdraw funds by writing a paper check.
What are the 4 types of banks?
What are some different types of banks?Retail banks. Retail banks, also known as consumer banks, are commercial banks that offer consumer and personal banking services to the general public. ... Commercial banks. ... Community development banks. ... Investment banks. ... Online and neobanks. ... Credit unions. ... Savings and loan associations.
What bank does cash app use?
Cash App partners with two different banks — Lincoln Savings Bank and Sutton Bank. Keep reading to find out more about Cash App and learn how to find out which bank handles your account.
How banks can win at payments?
Banks can turn the tables by incorporating their inherent advantages – strong balance sheets, deposit funding, customer data, regulatory expertise, and trusted local brands – to make the payments experience more personalized.
What is settlement finality?
Put simply – all transactions (daily transactions, security trades etc) have to be "settled" to be considered "final". Hence, the term Settlement Finality.
What does "finality" mean?
Finality: Finality simply refers to the idea that the occurrence of event is “final” and “permanent”. You cannot undo this event – it has occurred, and will remain ‘occurred’
Why is it called "reasonable finality"?
I say "reasonable finality" because finality in proof of work and proof of stake are still not truly "final". Technically, a settled payment can still be reversed. It may be improbable – but not impossible. Let's go over some of the ways:
Why don't centralized solutions have finality?
Finally, even our current centralized solutions don’t have finality because they can always be hacked, burned down, gun-to-the-head etc etc. Perfect finality is probably impossible. There are too many external factors outside of the system that can remove finality.
Is it easier to achieve finality in financial transactions?
However, achieving finality with financial transactions is actually easier said than done. We tend to equate "extremely difficult" to "impossible".
Is finality always probabilistic?
However, neither of them achieve true finality. Finality will always be probabilistic (i.e there's a chance – however small – that a transaction can be reversed) First, let's go over finality in proof of stake and proof of work.
How does the EU payment system protect against insolvency?
For the main EU Payment and Settlement systems, the means of protecting payments “in transit” against the insolvency of one of the Financial Institutions on either side of the payment transaction is provided via their designation under the relevant Settlement Finality Regulations. Specifically, payment and settlement systems that are designated may apply for protection against the operation of insolvency law for instructions entered into their system. This is achieved via the application of the relevant Settlement Finality law operable in that country. For countries within the EU it would be the local law passed under the “umbrella” of the 1998 EU Settlement Finality Directive. By virtue of the application of the regulations, payments then effectively become final and irrevocable at the point in the system’s processes where settlement is deemed to have taken effect.
Is the settlement finality directive updated?
Both the EU Settlement Finality Directive and related local regulations continue to be amended and updated, which all participating systems must continue to remain cognisant of.
In Financial Stability Standards for Securities Settlement Facilities
A securities settlement facility should provide clear and certain final settlement, at a minimum by the end of the value date. Where necessary or preferable, a securities settlement facility should provide final settlement intraday or in real time.
Guidance
A securities settlement facility should be designed to provide clear and certain final settlement of payments, transfer instructions or other obligations.
Same-day settlement
7.2.1 A securities settlement facility's processes should be designed to complete final settlement, at a minimum no later than the end of the value date.
Intraday settlement
7.2.2 Depending on the type of obligations that a securities settlement facility settles, the use of intraday settlement, either in multiple batches or in real time, may be necessary or desirable to reduce settlement risk.
Footnotes
Final settlement (or settlement finality) is a legally defined moment. See also SSF Standard 1 on legal basis. [20]
Why is finality important in financial industry?
This concept of finality is particularly important in the financial industry, where institutions need to maximally quickly have certainty over whether or not the certain assets are, in a legal sense, “theirs”, and if their assets are deemed to be theirs, then it should not be possible for a random blockchain glitch to suddenly decide that the operation that made those assets theirs is now reverted and so their ownership claim over those assets is lost.
What is the only recourse for a blockchain?
In the case of fully on-chain “digital bearer assets” where there is no ownership other than the chain itself, the only recourse is a community-driven hard fork. In the case of using blockchains (permissioned or public) as registries for ownership of legally registered property (land, stocks, fiat currency, etc), however, it is the court system that is the ultimate source of decision-making power regarding ownership. In these case that the registry does fail, the courts can do one of two things. First, it is possible that the attackers find some way to get their assets out of the system before they can respond. In this case, the total quantity of assets on the ledger and the total quantity of assets in the real world no longer match up; hence, it is a mathematical certainty that someone with a finalized balance of x will eventually instead have to make do with an actual balance of y < x.
Is proof of work final?
Finality in Proof of Work. Technically, a proof of work blockchain never allows a transaction to truly be “finalized”; for any given block, there is always the possibility that someone will create a longer chain that starts from a block before that block and does not include that block.
Is finality always probabilistic?
Finality is always probabilistic. First of all, a very important philosophical point to make is that there is no system in the world that offers truly 100% settlement finality in the literal sense of the term. If share ownership is recorded on a paper registry, then it is always possible for the registry to burn down, ...
Is blockchain a settlement mechanism?
Entrepreneurs, investors and enthusiasts claim that public blockchains are an acceptable settlement mechanism and layer for financial instruments. But public blockchains by design cannot definitively guarantee settlement finality, and as a result, they are currently not a reliable option for the clearing and settling of financial instruments.
