The bank-backed blockchain consortium Fnality has launched a pioneering ‘Earmarking’ capability that brings smart contract functionality to institutional payments using digital representations of central bank money. Developed in collaboration with Banco Santander, Lloyds Banking Group, and UBS, the innovation enables banks to program funds for conditional release upon cryptographic proof of external events—a first for wholesale financial markets.
This advancement allows institutions to automate complex financial workflows while maintaining balance sheet integrity. Funds remain on the originator’s ledger until predetermined conditions are met, such as delivery of tokenized securities, completion of FX swaps, or settlement of repo agreements. The system uses cryptographically signed proofs from external systems to trigger payment releases in Fnality’s Sterling-denominated payment system (£FnPS).
“Earmarking bridges the gap between traditional finance and blockchain’s potential by introducing true programmability to central bank money,” said Fnality CEO Michelle Neal. The feature has already been successfully tested in proofs-of-concept spanning securities settlement, cross-border FX, and repo markets.
Santander’s Digital Assets MD John Whelan highlighted how the solution delivers atomic settlement—eliminating leg risk in multi-step transactions while maintaining interoperability with other distributed ledger systems. This addresses a critical barrier to institutional blockchain adoption by ensuring transactions either complete fully or fail entirely, with no stranded exposures.
Key Innovations:
- Conditional fund locking with real-time balance sheet visibility
- Cryptographic proof-based release mechanisms
- Native integration with tokenized asset workflows
- Preservation of central bank money settlement finality
The development marks a significant step toward Fnality’s vision of creating a next-generation payment rail for wholesale markets, combining the security of central bank money with blockchain’s programmability. As financial institutions increasingly explore tokenization, solutions like Earmarking that bridge traditional and digital finance are becoming essential market infrastructure.
Industry Impact:
- Enables complex “if-this-then-that” financial workflows
- Reduces counterparty risk in multi-leg transactions
- Supports growth of institutional DeFi applications
- Provides regulatory-compliant programmability
Fnality’s 18 bank shareholders, including major global institutions, are now positioned to leverage this capability for real-world use cases as the consortium prepares for full-scale commercial deployment of its payment system.