- 28.12.2020 08:15 pm
- 25.12.2020 08:00 pm
- 15.12.2020 08:15 am
I like to point at the fact that the Bank of England is taking a leadership role in FinTech, but it goes wider and deeper than this. Bear in mind, the regulator – the Prudential Regulatory Authority (PRA) – lies under the Bank’s control. Before the Global Financial Crisis, it was independent and part of the FSA. This does not mean it is under government control – like the US Federal Reserve, the Bank of England is a private company – but they do co-ordinate closely with Her Majesty’s Treasury department within UK Government, especially as HMT control the Financial Conduct Authority (FCA).
This gets interesting as I heard recently that the Treasury told the Bank that the UK needed to lead in financial innovation and particularly blockchain developments. That is why we have things like Project Innovate and the Regulatory Sandbox. When I heard about the launch of the Regulatory Sandbox at theInnovate Finance Global Summit b back in April, I thought it was quite a breath of fresh air. A regulator working with start-ups to get them fast-tracked into launch. Now I see it being used as a standard in other markets.
I’ll talk more about those tomorrow, but right now I’m going to hark back two months ago to the height of the Remain and Leave Brexit campaigns. A week before the vote, Labour MP Jo Cox was attacked and killed by an extremist in her constituency. It created a black veil over the whole campaign, and most leading figures cancelled any statements during this time. One of those leaders was Mark Carney, who was going to deliver a speech launching the Bank of England’s FinTech Accelerator. Yes, their very own accelerator. This is the first central bank I’ve seen launching their own accelerator, and the opening passage of his speech set the scene:
The emergence of mobile telephony, the ubiquity of the internet, availability of high-speed computing, advances in cryptography, and innovations in machine learning could combine to enable rapid changes in finance – just as they have in other areas of the economy.
The ledger, once stone, wood, or paper – and always centralised – is now digital and may become distributed. FinTech has the potential to deliver more resilient financial infrastructure, more effective trade and settlement, and new ways to encode, share and analyse data.
For the financial sector, these could offer shorter, speedier transaction chains; greater capital efficiency; and stronger operational resilience. For consumers, they could mean more choice; better-targeted services; and keener pricing. For everyone, FinTech may deliver a more inclusive financial system, domestically and globally; with people better connected, more informed and increasingly empowered.
These benefits spring from FinTech’s potential to deliver a great unbundling of banking into its core functions of settling payments, performing maturity transformation, sharing risk and allocating capital. This would mean revolution, fundamentally re-shaping the financial system.
You will all know that I agree with these statements, but I didn’t blog about them back then as I was (a) overseas, (b) keep seeing people quoting Mark Carney’s speech, and (c) was waiting for the right time to rake back over these coals, and now is that time.
This is because the Accelerator ended its call to action for first companies to register their interest in working with the bank at the end of July. What is the Accelerator all about? Well, you can find out. The Accelerator has its own web page that illustrates the work it is performing:
What does the Accelerator do? – Aims of the work:
The FinTech Accelerator deploys innovative technologies on issues that matter to the Bank’s mission and operations. Working in partnership with FinTech firms we will seek to develop new approaches, build our understanding of these new technologies and in some way support development of the sector.
How will the Accelerator engage with firms?
The Accelerator will appoint FinTech firms to run short Proof of Concept (POC) projects in a number of priority areas. Each POC will have clearly defined requirements and success indicators.
The selection process will be competitive and transparent. We will make clear our priorities, so that relevant firms can register their interest. From there a short list will be developed, and senior Bank staff will select the firms to work with on a POC. The selected firms will have the opportunity to test and demonstrate their products in a live environment, working closely with Bank experts. At the close of the POC, the outcomes will be assessed against the initial criteria, and the Bank may publish a case study or act as a reference client.
Successful firms may have the opportunity to re-tender through an open process to become an on-going partner of the Bank.
What is in the current cohort?
Below are some examples of current projects.
Areas of Interest
We are interested in new ways of structuring and analysing large data sets and data gained in regulatory reporting. Other technological developments of interest are around machine learning, particularly in relation to anomaly detection and pattern recognition.
Fascinating stuff, and an area we can combine these insights with other movements from the Bank, such as launching a Central Bank Digital Currency (CBDC). This was a speech back in March by Ben Broadbent back in March, that concluded with these sage words:
Some admirers of bitcoin see it as a means of bypassing central banks altogether. They are in some ways the descendants of the supporters of “free banking” in the 19th century. Conversely, others see the distributed ledger as an opportunity for the central bank to expand its role, via a “central bank digital currency” available to a much wider group of counterparties. If it were a close substitute for bank deposits, a CBDC would represent a shift towards a “narrower” banking system. This too is an old debate in economics: should banks be prevented from creating liquidity, or is maturity transformation an inevitable and necessary feature of market economies?
I’m certainly not attempting to enter that debate today. It’s in the nature of long-standing questions that the answers aren’t obvious. What I do want to do, however, is to point out that it is a relevant question – that the introduction of a CBDC probably involves more than a narrow, technical judgement about the efficiency of the payments system, very important though that is.
So why am I discussing this today? Come back tomorrow to find out.