BoE and the BIS Launch the London Innovation Hub

On 11 June the Bank for International Settlements (BIS) opened its latest Innovation Hub Centre in London following on from hubs in Hong Kong, Singapore and Switzerland that have already been established. Canada, Frankfurt and Paris, Stockholm, supported by all of the Scandinavian central banks, and New York are planned to open in due course.

These hubs exist to identify problems and solutions that face central banks and financial systems and then to develop tools that can be implemented ready for handover to the real-world users. The hubs are intended to work as flat, multi-disciplinary teams drawing on resources from across the BIS community – fintech, economists, lawyers, scientists, anthropologists etc. Their role is to investigate novel technology and take broad perspectives.

The six areas where they focus are the use of technological innovation in supervision and regulation, next generation financial market infrastructures, central bank digital currencies, open finance, cyber security and green finance.

Andrew Bailey, Governor of the Bank of England, spoke about the importance of collaboration and that the benefits of the work would be global. The London hub would be able to draw on the whole of UK fintech. 75,000 people work in fintech in the UK, 1.1 million in financial services and 1.4 million in technology.

He also spoke about the importance of financial stability and that this is a global good. The role of the public sector is to enable and to challenge development of the financial markets, fulfilling its role as a guardian of the public interest.

Innovation needs to support this public interest and he spoke about the Bank’s work on stable coins and central bank digital currencies (CBDCs). He was very clear that CBDCs are a critical innovation, a fundamental change with significant implications. ‘If this comes to pass, it will be one of the most fundamental innovations in the history of central banking, it will move us into a new era’, he said.

Jon Cunliffe, a Deputy Governor, supported this with the comment, ‘… CBDC if adopted, could represent one of the biggest innovations, one of the biggest developments in central banking, since central banking itself started many centuries ago.’

Benoît Cœuré, Head of the BIS Innovation Hub, reported that half of the BIS’s current projects are CBDC-related, covering wholesale, retail and multiple CBDC interoperability. He explained that technology threatens to undermine the banking system and that stability, competition and data privacy all need attention to safeguard trust in money and to ensure financial stability.

He sees technology as offering central banks the ability to enhance the functioning of the international payment system and to be a source of public good. He also gave details of a wide range of CBDC projects currently being run, predominantly to do with wholesale CBDCs and cross border operations.

Jon Cunliffe talked about the Bank’s role being to manage the interaction between the public and the private sector through setting standards and the use of regulations. Its goal is safe, substitutable, interoperable and, above all, stable payments whatever form they take.

Technology is driving rapid change in payments and the Bank must evolve payment frameworks in response. The Bank has been very active, and an example of its Artificial Intelligence (AI) public-private forum was given that collects data, models risk management and governance to learn together.

Another Deputy Governor, David Ramsden, said that 71% of people in the UK used the services of at least one fintech, and this was supported by the Chief Operating Officer of the UK’s Monzo bank, who said they had 5 million accounts and were now responsible for 5% of instant payment transactions.

The UK has a relatively mature payment infrastructure and so the uptake of fintech and the services of banks such as Monzo is impressive. Monzo put this down to the UK’s leading regulatory infrastructure and the public’s willingness to change.

Mastercard also praised the Bank’s forward – thinking work on regulations. Mastercard processes a billion transactions worldwide each day using AI to test each transaction. Considering the UK, it highlighted the major challenge involved in reaching the 12 million people it said are digitally under-served and also drew attention to the challenge of getting small and medium size enterprises digitally ready